I just came across a recent TED talk by Bruce Bueno de Mesquita entitled “Three predictions on the future of Iran, and the math to back it up.”
In a recent blog post, I argued that one of the core causes of the current global credit crisis was Wall Street’s dogmatic belief in the power of math to capture the extreme complexity of market dynamics and financial risk. Bueno de Mesquita’s talk is a good example of how far this blind faith in math can take us. He claims that using game theory, math and powerful computers, it is possible to predict the behavior of key geopolitical players in the international arena with great accuracy.
If blindly applying math to asses the financial risk associated with complex financial instruments resulted in one of the worst economic crisis in history, I don’t even want to think about the possible consequences of assessing the risks of potentially destructive human events such as nuclear wars with the same approach.
I highly recommend you to watch the video after reading my previous post with all the articles that I link to in order to see the clear parallel between Bueno de Mesquita’s approach to geopolitics and Wall Street’s approach to finance — it’s almost one-to-one.
It is remarkable that Bueno de Mesquita states during his talk that the stock market is unpredictable, but the subject mattter he deals with — which is undoubtedly of the same fundamental complexity of the stock market — is predictable if the right computers and mathematical models are used.
There are two quotes from the speech that reveal the deep intellectual arrogance of this approach and that I’m sure would have sent a quiver down Friedrich Von Hayek’s spine:
“If you can predict what people will do, you can engineer what people will do, and if you can engineer what they do you can change the world…”
And the grand finale:
“I would like to leave you with a thought that is the dominant theme about this way of thinking about the world… When people say to you “that’s impossible”, you say back to them: “When you say that’s impossible, you’re confused with I don’t know how to do it.”
Darin Swan says:
I saw your post at TED, along with others, and viewed the video as well. I cam across Bruce Bueno de Mesquita on a recent viewing of the History Channel’s program “The Next Nostradamus”. Whether you believe his claim of 90% accuracy or not, his information is compelling. I’ve worked for the last year and a half on my Masters in a similar field as Bueno de Mesquita, but am nowhere near the expert that he is in his unique field. I can appreciate his predictive model based on game theory and do believe that different models are better for different applications. His model, specifically, is meant to work in a very specific area and not in something like the financial market. Partially due to the lack of information or the volume of influencers, but more likely because social interaction can more likely than not be broken down into a much more simple process. All of the above being said, I also wrote a paper on the future of the nuclear weapons program in Iran (assuming rational actors) and filtering the data through the LAMP Model created by Dr. Jonathan Lockwood (lamp-method.org). Of course, my paper was much more detailed, but it predicted a similar outcome based on the various influences and goals of each actor. The LAMP model is known, it is not proprietary, and does not rely heavily (that heavily) on mathematics – seemingly unlike Bueno de Mesquita. One think I’ve learned through my journey in analytical predictive methods is that once you determine the most likely possible outcome, that outcome can be influenced through influence (in a variety of ways, of course). The future is much like what is showcased in Nicholas Cage’s film “Next” (en.wikipedia.org/wiki/Next_(film)); both an excellent film and an example of how predicted happenings can constantly be changed.