Sums of knowledge
Sums of knowledge
Infinity
Though it is hard to make the following comparison with any accuracy, I will posit that we live in an age of relative confidence: in our achievements, our abilities, our entitlements, and our political positions – basically, in our knowledge. I cannot pretend to know why, and the proof must be the subject of a different paper. But I believe there were times, perhaps two or more centuries ago, during which such confidence was weaker. When some of the greatest human insights were about to be made, people generally knew quite a bit more about what they did not know. Indeed, awareness of ignorance must have been precisely what drove Renaissance thinkers to overcome it. A hunger for knowledge, says logic, requires an apparent shortage. Compared to earlier eras,if I may generalize, ours seems to be defined by how little we care to know about what we do not know. And if that is the source of our confidence, then we should give it another name: hubris or pigheadedness, perhaps; or plain old stupidity.
Modern society encourages us to believe that the Earth circles the Sun, that medical science has found cures for ninety percent of what ails us, and that we can predict the weather hundreds of years into the future. The rest of discovery has been written off as a simple matter of application. Such confidence arises from our perfect understanding of pretty much everything, and it touches on a divergent and yet important topic: the politics of confidence, where one man’s certainty becomes his license to tell everyone else what to do – but that also must wait for another paper. Back on the topic of risk, let us say that the mathematical expression for such an abundance of (apparent) knowledge is infinity, and the quantity of associated unknowns is zero.
One over infinity
The truth, as any amateur philosopher should know, is different. The Earth does not circle the Sun; instead, both masses wobble and weave through space-time (for now, that is, until a better physicist than Einstein comes along). As for medical science, even a fundamental organ such as the liver presents it with a conundrum; hour by hour a liver will crank out millions of chemicals, few of which can be identified, by processes as yet undescribed, for purposes unknown. If we cannot say how the body works, how can we think to cure all its ills? Finally, the weather: thanks to television, we regard it as a simple mechanism, easily directed by the remote control in the meteorologist’s hand; yet it, too, remains a great puzzle. Gasses, cosmic rays, Newtonian mechanics, quantum physics, and who knows what else, mix and move in ways that climatologists will never completely understand. When we unmask old mysteries,all we find underneath are new ones. And the new ones tend not to be smaller,but bigger.
Of course, there are many things we know for certain; they are the causes and effects we can see repeating around us, described by our words in such a way that the cause-effect relationships become logical inevitabilities. Wittgenstein (1922) was the first to say this: we can only state the obvious, because our words mean what we say they mean, and the rest is…well, we cannot say, because we have no words for it. There is only the obvious,or nothing – knowledge is expanding all the time, but it remains binary in that sense. The boundary between absolute certainty and total ignorance exists because humans reside inside the system they are trying to describe, which means they can never describe it completely. The information age soothes us by telling us we know it all, pretty much, but we can’t possibly – and that means, in the grand scheme, we know essentially nothing. The mathematical expression for our actual, versus our apparent, knowledge, is a very small number (what we really know) out of a very large one (what there is to know);essentially, one over infinity.
Cynicism and common sense
Let us apply this humbling inventory of knowledge to one of today’s(literally) hot topics: global warming. What should an actuary do when calculating premia and loss ratios for hurricane cover, in the context of a theory (for want of a better word) about human action making carbon dioxide, in turn making oceans hotter, in turn powering tidal surges? Likewise, what should a potential investor in hydrogen fuel cells assume, not only about hydrogen-for-petroleum substitution, but also about the economics of the fuel-cell business, including hydrogen manufacturing plants, steel storage tanks, electrodes, and motors?
Well, the first motto is cynicism. The actuary should assume the worst– not about events to come, but about the person who is trying to predict those events. What does the average expert know? Nothing, really (see above). What is his motive? His own welfare, surely. How objective will his analysis be?Not at all, because one person is a subjective instrument of thought; a creature that thinks for itself, by every possible meaning of those words. On top of that, how many steps of insight are required for this person to get from today’s weather to tomorrow’s? Including the Coriolis effect, gravity, seasons,ocean currents, salinity, land contours, subatomic-particle bombardment, cloud formation, light absorption, and the chemical reactions among the thousands of gases that make up the atmosphere, there are a vast number of factors –all of them necessary just to move time forward by twenty-four hours. Is it wise, therefore, to accept, for the purposes of selling insurance cover, someone’s feeble few calculations, which probably are done badly anyway, and a thermometer dip or two, and use them to extend time forward (or backward) by thousands of days, or years? Such a prediction must be worthless; once more, the sum of knowledge will be small, and the sum of unknowns infinite.
Actually, though, there are certain knowns in this weather-prediction scenario. They are the cynical truths of the situation; namely, those concerning the selfish actors and their limited knowledge. With those knowns, the actuary should largely disregard what the climatologist says, and start looking for more reliable sources of information. Cynicism is a blend of experience and perspective, so the best sources of information will be broad and wide, cover a long period of time, and – essentially – be in conflict with one another. The best information must include the pronunciations of global-warming acolytes and heretics, both. And the final judgment – reconciliation of the varied and conflicting sources – can come only from the person whose money is on the line, because to delegate that critical decision is to delegate the available profit.
So, a cynic will note that global warming is an industry of its own, with a product to sell and money to make. He knows this because all human action is industry, with profit as its motive. He will conclude, therefore, that actual salt-water damage claims will be lower than the global-warming salesmen are saying, and that premia set during this twenty-first century panic will have disproportionately low loss ratios and high margins, other weather factors permitting. The commercial question then becomes whether to set rates high, with the herd, and take the available profit, or set them low and take market share,knowing that extraordinary claims are unlikely to materialize and that margins will stay positive in spite of the hysteria.
The same cynicism will serve our fuel-cell investor. If he is smart, he will discount predictions of oil-price spikes and dried-up wells, and put a premium on the self-interest of the various actors in his commercial model. Again, he should assume the worst about them. People will burn the fuel that is cheapest for the job at hand, and will not go out of their way to do anyone else a favor. They will not act for the greater good, but for their own. It will not matter to them whether the vaunted cell is a net consumer of oil and a belcher of carbon dioxide (which it is, because of all the petroleum that must be burned and the water that must be electrolyzed to make hydrogen, and the storage tanks,catalysts, and motors that must be assembled, and all the fuel that this manufacture requires).
The investment decision should ignore the background noise and build the plant if the demand is likely to materialize – whether by buyers’independent decisions or by government edict – in quantities and prices that will yield a return. Ironically, if there were such a thing as a truly disinterested ecologist, one with nothing to sell or gain (and remember, there is not), he would see today’s fuel-cell technology as a monument to waste,because it is so dependent on oil compared to the gasoline engine. But a clear-headed investor might do his sums and see that all is well.
For both actuary and investor, the apparent risks are not the real ones. The apparent knowledge isn’t knowledge, and the experts are so mainly when it comes to serving themselves. In other words, the commonest of common sense rules. That is the way of the world, and the best approach to dealing with the risks life poses is to remain absolutely certain of it.
Andrew GreenChristofferson Robb & Company, London UK
