Meet With The Radical Uncertainty
Meet Radical Uncertainty
" Uncertainty is an uncomfortable position. But certainty is an absurd one."
— Voltaire, author_
Economist and analysts have to make predict in condition of radical uncertainty. They often have
to deal, unfairly,with hostility from audiences of ego who wants certainty. In some cases i have seen traders getting abousiv towards analysts and forecasters on trading floors, uasing them as a punchball for their own failure. Having to sail radical uncertainty for living is part of the game traders and investors play. Thay are not the specialists in the market, they are performar.
The models presented in this article aim to be useful, but they are not foolproof. Their shortcomings are summed up by statistician George Box, who said, “All models are wrong, but some are useful.”
I find exceptions to the models and frameworks in this book regularly. That is the challenge of trying to simplify the complex.
To a Gestaltist, this is not problematic, but enlightening. These exceptions reveal something new, something interesting, something that needs exploring. They are openings. This is a Gestaltist’s way of looking at things.
Gestaltism is the psychological approach which lies behind my coaching. When I learned to coach, I studied many different approaches, but it was the Gestalt method which struck me as most relevant to the world of financial markets.
Most coaching approaches seek to reduce an issue to a point at which it can be worked with. *Gestalt* coaching, by contrast, seeks to stay with the uncertainty. A Gestalt coach is encouraged to keep exploring and not to accept what they see as definitive.
- Trading too is helped by a Gestaltist approach. When traders seek certainty, they are playing the ego’s game. The ego wants certainty. It wants the sure thing, the win‑win.
- The sure thing is the seed of destruction which brought down Lehman Brothers and LTCM, and lies at the root of a million smaller trading failures. Not all trading losses are down to the search for the sure thing, but the search for the sure thing is behind almost all trading failures which result from catastrophic losses.
- Trading requires embracing uncertainty, not seeking to escape it. But there is a particular type of uncertainty which is part of the trader's world: 'radical uncertainty'.
- The term was coined by British economists John Kay and Mervyn King, the latter of whom served as the governor of the Bank of England through the 2008 Global Financial Crisis.
- Kay and King distinguish between 'uncertainty', where cause and effect are knowable and therefore can be resolved, and 'radical uncertainty', where cause and effect are unknowable and impossible to discern and resolve.
Radical uncertainty presents a serious challenge to a person’s ego. The ego hates uncertainty of all types and seeks certainty, but there cannot be certainty in a radically uncertain world. In the face of radical uncertainty, even the very best and smartest are fallible.
Isaac Newton, a genius in the purest sense of the word, fell foul of radical uncertainty in the markets during the 1720 South Sea Bubble.
Newton made a £7,000 profit on his first South Sea Bubble trade (that is around £1m in today's money). But after taking his profit he watched prices race higher, and heard of others making fortunes. Newton bought back in, at what turned out to be the top. He lost £20,000 (around £3m in today's money), his entire fortune, when the South Sea Bubble collapsed. After that, he was reputed to have said, “I can calculate the motions of heavenly bodies, but not the madness of people.”
187
