The Right Way to Be Wrong
We’re all wrong sometimes, probably more than most of us like to admit. Spouses, if we choose good ones, are usually very helpful in pointing out just how often that is.
We like to applaud visionaries, but they blunder just as often as anybody else and usually more spectacularly. If you are ever going to get anything right, being wrong is just part of the territory.
It’s not something they teach you in school. Smart people are supposed to have the right answers, but it takes much more than intelligence to fail fruitfully. Everybody is right some of the time, but to be wrong and do it well requires a special mix of genius and character.
Cargo Cult Thinking
A while back I wrote about Cargo Cult Marketers. I got the name from a famous speech that Richard Feynman gave about islanders in the South Pacific who, after World War II, built mock airfields hoping to attract valuable cargo. They thought they had seen it work before and just couldn’t grasp why treasure never fell from the sky for them.
It’s easy for us to fall into the same trap. The world is a confusing place and data is rarely clear cut. Even after a thorough analysis, reasonable people can often disagree on what conclusions to draw. On the other hand, if you believe something to be true, you can always find some evidence somewhere that will support your claim.
As Feynman himself said, “The first principle is that you must not fool yourself – and you are the easiest person to fool.”
When I started my career, it wasn’t in media or marketing, but finance. Specifically, financial derivatives based on natural gas. Our biggest client was Enron, an up and coming company with some very smart traders. They made a killing because they simply knew more about the market than anyone else.
But they didn’t stop there. They assumed that the principles which made them successful in natural gas were universal and wanted to capitalize on their infinite wisdom. Enron looked unstoppable and Fortune named them one of America’s most admired companies. Everybody cheered as they sought to apply their philosophy to new markets such as electricity, water and even broadband.
Of course, there were some telltale signs that they might have had it wrong and their new businesses were hemorrhaging money. However, rather than allow for the possibility that their vision was misguided, they moved the losses off the books with the help of their auditor, Arthur Anderson.
The result: both companies went down in the greatest corporate meltdown in American history. Jeffrey Skilling, the Enron CEO, is still in prison while Ken Lay, the Chairman, only escaped his sentence by dropping dead at his Colorado vacation home. Enron and Arthur Anderson have become synonymous with foolish avarice and failure.
One of the foundations of modern finance is the Black-Scholes model, which values financial options. It’s not a stretch to say that it forms the basis for the vast majority of derivatives trading that occurs today.
So it was with great fanfare that Myron Scholes, one of the creators of the model, along with Robert Merton, with whom he shared the Nobel prize, became partners in a new hedge fund, LTCM. They were to put their famous brains to work on complex mathematical models that were sure to earn billions for their investors.
Unfortunately, they soon found that the real world differed from their models and had to massively leverage their fund in order to achieve the impressive results that were expected of them. Initial losses resulting from the Asian financial crises cascaded into a disaster that not only brought down the firm, but almost took the global banking system with it.
Merton and Scholes vaunted reputations took a severe beating. To make matters worse, in related litigation that followed Schloes testified that he could not comment on illegal tax avoidance strategies adopted by LTCM because it was not his area of expertise. (He had written a textbook on the subject).
So it seems that even Nobel laurette’s can be not only be wrong, but also thoroughly disingenuous.
Einstein Misses the Boat
Einstein is notable mostly for his successes, not for his failures, although they are probably just as important. Despite the fact that he had pioneered some of the seminal concepts of quantum theory, he was unable to accept its main implication: that God does indeed play dice with the universe.
Einstein therefore found himself on the wrong side of the most important scientific debate of the 20th century and his career as a serious scientist was effectively ended. J. Robert Oppenheimer, who would become his boss at the Institute for Advanced Studies, once remarked that Einstein was “completely cuckoo.”
Yet, there is a substantive difference here. Einstein’s lapses were more successful than most people’s successes. His debates with Bohr are considered the height of scientific discourse and his EPR paradox led to the first successful teleportation by scientists at IBM in 1993, just to name two instances of his fruitful failures.
While few took his science seriously past the 1930’s, the man remained revered. Just a few years before his death, Einstein’s 70th birthday party was enthusiastically attended by 250 of the world’s most eminent scientists and he continues to be a hero and source of inspiration to this day.
Getting at the Truth
Einstein differed from Lay, Skilling and Scholes because he cared more about the truth than he did about being right. He felt strongly that quantum mechanics couldn’t be true and did everything he could to prove it wrong. Every time one of his points failed, he conceded and moved on.
The result was that he made an important contribution by keeping his interlocutors honest. He didn’t sulk in a corner or try to doctor experimental results. He was never petty or dishonest.
In the same spirit, Richard Feynman said, “The idea is to try to give all the information to help others to judge the value of your contribution; not just the information that leads to judgment in one particular direction or another”
And therein lies the difference: Some people want to be right while other want to make a contribution.