William Byers, a retired math and statistics professor, explores the subjective and ambiguous side of the so-called exact sciences in The Blind Spot: Science and the Crisis of Uncertainty (Princeton University Press, 2011). All well and good, you may say, but what does this book have to do with trading and investing in the financial markets?
Byers makes the obvious link—that financial firms, with their quant packages, marketed the illusion of certainty. “What was being sold was the faith that the complex, human, world of economics and finance could be made over in the image of science, could be made objective and predictable.” (pp. 61-62)
But the obvious is rarely the interesting. As Byers blurs the lines between art and science, the human and the “pure,” even knowing and the known, he offers insights into the processes of learning, creating, and discovering. These processes are as vital for traders as they are for scientists.
For those who blithely assume that our eyes are up to the task of seeing what is, let’s start with the book’s title. “The physiological blind spot is the place in the visual field that corresponds to the lack of light-detecting photoreceptor cells on the optic disc of the retina where the optic nerve passes through it. Since there are no cells to detect light on the optic disc, a part of the field of vision is not perceived. The brain fills in with surrounding detail and with information from the other eye, so the blind spot is not normally perceived.” (p. 2)
We are constantly being confronted with metaphorical blind spots. For instance, there are inherent limits on what can be known using concepts and symbols. The mind is not simply some kind of computing device, fixed and unchanging, and the world is neither static nor stable. It is always changing in a way that defies certain prediction, and it includes entities/processes that remain ungraspable, at least by reason.
The financial markets may not be a microcosm of the world, but they share its qualities of uncertainty, unpredictability, and constant change. The tasks required of a person trying to understand the markets are similar to those of the scientist trying to understand the world.
The very act of understanding “demands placing something in a context. It implies having a ‘feel’ for the situation in which the concept arises, not to mention the ability to use the concept in novel situations or solve problems not previously encountered. … Understanding is a process without end. At a certain stage in the process, one can say, ‘I understand randomness.’ But in reality you can always understand it better, understand it differently. “ (pp. 8-9)
In order to understand what is—not superficially but more deeply and creatively, it is necessary to embrace ambiguity and cognitive dissonance because “ambiguity is the way things are. … When there is ambiguity, there is one situation but two perfectly good ways of looking at it. To make matters worse, these two points of view are in conflict and may even be incompatible with each other. This incompatibility makes situations of ambiguity uncomfortable, irritating, even anxiety provoking—it evokes a tension that might even feel intolerable.” (pp. 70-71)
Ambiguity should not be resolved by opting for one alternative and rejecting the other. Continuing the ocular theme, Byers writes that “one metaphor for ambiguity is binocular vision. When you cover up one eye and view a scene through the other, the scene you see is flat, two-dimensional. When you look at the same scene with two eyes, each eye registers a slightly different scene. These are the incompatible points of view. The brain reconciles these two views by creating a new way to see the situation. This is accomplished by introducing a new dimension—depth.” (p. 72)
Byers’ book is itself ambiguous, and in a good way, since “ambiguity is … the ultimate attempt to grasp the ungraspable.” (p. 163) Ambiguity is also the fundamental state of the world, or perhaps I should say it is the fundamental process of the world: the world is better characterized as becoming than as being. In an ambiguous world control is an illusion, as is infallibility. But we are offered something far more enticing: “the world of the uncertain is the world of creative possibilities.” (p. 185)
Philosophers of science will read The Blind Spot as a serious effort to recast the process of science and the world it tries to grasp. But this book has ramifications outside the world of science. It argues against rigid thinking, complicated ideas (as opposed to complex ideas), and reductionism. It encourages metaphor, wonder, and unity. It is a rich book.