“When something works, just do it. With Notre Dame’s record, who am I to argue with that?”
– Warren Buffett
Knowledgeable college football fans are aware of the sign which is posted in Notre Dame’s football locker room, the legendary “Play Like a Champion Today” sign. There is a story that the great investor Warren Buffett liked the sign so much, that he made a similar one for his office. Buffett admits that he has no idea what it is about this sign that was so attractive to him, but if it is good enough for the most storied program in college football history, it is good enough for him.
Sometimes things just work, and we can use them without knowing why.
Author Nassim Taleb once wrote a blog in which he identified the folly in our human tendency to try to “Teach Birds How to Fly”. Taleb wrote:
The greatest problem in knowledge is the “lecturing birds how to fly” effect.
Let us call it the error of rationalism. In Fat Tony’s language, it would be what makes us the suckers of all suckers. Consider two types of knowledge. The first type is not exactly “knowledge”; its ambiguous character prevents us from calling it exactly knowledge. It’s a way of doing thing that we cannot really express in clear language, but that we do nevertheless, and do well.
The second type is more like what we call “knowledge”; it is what you acquire in school, can get grades for, can codify, what can be explainable, academizable, rationalizable, formalizable, theoretizable, codifiable, Sovietizable, bureaucratizable, Harvardifiable, provable, etc.
The error of rationalism is, simply, overestimating the role and necessity of the second type, the academic knowledge, in human affairs. It is a severe error because not only much of our knowledge is not explainable, academizable, rationalizable, formalizable, theoretizable, codifiable, Sovietizable, bureaucratizable, Harvardifiable, etc., but, further, that such knowledge plays such a minor life that it is not even funny.
We are very likely to believe that skills and ideas that we actually acquired by doing, or that came naturally to us (as we already knew by our innate biological instinct) came from books, ideas, and reasoning. We get blinded by it; there may even be something in our brains that makes us suckers for the point.
In short, the ‘error of rationalism” is that all humans have a tendency to try to use our rational understanding, and our reasoning, to explain, understand, or predict the world. In fact, the smarter and more educated we are, the more likely we are to fall prey to this false belief that we can use our superior reasoning skills to explain the world around us.
He also makes the case that this is a severe error because so little of our rational knowledge is actually useful, particularly in human affairs, where irrational human emotion can play such a major part.
How does this all relate to the markets in 2017? Turn on CNBC this afternoon, and you will likely see the “Smart Money” pundits talking about how North Korea, hurricanes, Donald Trump, or the Federal Reserve are going to bring down the US stock market any time now. Yet the S&P 500 keeps marching higher.
Sometimes things just work, and we can use them without knowing why. When something works, just do it.