Yesterday, I found this panel discussion from the 2009 Digital Life Design conference, held in Munich. It features Daniel Kahneman, who won the Nobel Prize in economics in 2002, and Nassim Taleb talking about the financial crisis. I had just found an interview with Kahneman in Haaretz, in which he tells the story of the soldiers who are lost in the Alps and find their way out using a map of the Pyrenees. Trying to find out if he had used it elsewhere, I found the story mentioned in Steven M. Sears' The Indominable Investor, who sets it up with the Munich conference appearance. A little more searching led me to the video.
My interest in it is of course that we here have a very distinguished psychologist telling a story that I happen to know is of doubtful provenance. Indeed, the story is at the heart of my critique of Karl Weick's scholarship in general. I wanted to know whether Kahneman had a better source than Weick. I didn't expect to hear him say this:
There is a story that is quite famous in organizational psychology. The famous organizational psychologist Karl Weick told it, I think, for the first time in 1982, and last night I googled it and found out that he had taken it from somebody else and not given ... never mind ..." (37:37)
He doesn't say so, but what he found was presumably the paper Henrik Graham and I published in 2006, or some of the surrounding discussion on the web, in which we show that (to complete Kahneman's sentence) Weick had not given Miroslav Holub (his source, that "someone else") credit for it, i.e., he had plagiarized it. In a manner of speaking then, I've been cited (not quite, but at least alluded to) by a Nobel laureate!
Interestingly, later in the conversation Taleb calls for a boycott of business schools who continue to teach students things we now know don't work, like Modern Portfolio Theory, just because they can't think of something else to teach them. "Nothing is better than something bad," he says (55:40). I.e., having no map at all is better than having a wrong map. Indeed, Kahneman makes the connection back to Weick's story explicitly:
You are describing business schools as giving students a map of the Pyrenees, basically, when they are going to be in the Alps. But it may turn out, you know, that they want that map. [... ] there is a short term appeal to what you want them to give up, and you have a problem there in trying to convince people to give something up without giving them a fairly specific alternative. (55:48)
Which is exactly my argument, except that mine works at a slightly more literal level. After all, business schools not only teach portfolio theory, i.e., a (metaphorical) "wrong map" of finance, but also sensemaking theory, which claims that "any old map will do", especially in a crisis. And as I pointed out in a recent working paper, in the mid-1980s, Weick discussed both that claim, and the Alps story that he takes it from as a moral, with Bob Engel, the treasurer of Morgan Guaranty. Morgan Guaranty is today known as JPMorgan Chase. Perhaps, Wall Street literally thinks that any old portfolio will do?