Abstract
Orio Giarini spent a life working on insurance, growth, wealth and technology. His work was deeply influenced by a famous Austrian novel, namely The Man without Qualities authored by Robert Musil. In this novel, a so-called Secretariat of Soul and Precision plays an important role. Musil's Secretariat turns out to be a remarkable prism through which Orio Giarini's many contributions can be deciphered. In the following text, I submit the hypothesis, among other ideas, that Orio Giarini had a very early intuition on two important and related notions, namely ergodicity and path dependence, whose consequences are still not fully understood in economics. Ergodicity and path dependence are indeed critical when one aims at bringing more precision to soul and more soul to precision.
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27 October 2021
A Correction to this paper has been published: https://doi.org/10.1057/s41288-021-00254-2
Notes
“In any research, even the most ‘quantitative’, it is essential to develop what the English call ‘feeling’, or feeling of things, and the Germans call ‘Fingerspitzengefühl’ (feeling things with your fingertips).”
“Count Leinsdorf! Ulrich said softly. Do you remember that I once advised you to set up a general secretariat for all problems that require as much soul as precision?” Musil (1981, p. 1043).
I still have the book in my personal library. In English: The Diminishing Returns of Technology: An Essay on the Crisis in Economic Growth.
"Je peux dire que ce livre est une des plus grandes lectures que j’aie jamais faites et que c’est un livre éminemment obscur, illisible et irrésistible, que la lecture en est une mystérieuse corvée, presque insurmontable pour la plus grande part des lecteurs, mais que, une fois cette corvée dépassée, tandis que la lecture se dépose, il s’élève d’elle un incomparable enchantement." https://www.lalibre.be/archive/l-homme-sans-qualites-robert-musil-51b8ee9be4b0de6db9c76481.
To put it in Emmanuel Derman's words ““In physics, it takes three laws to explain 99% of the data; in finance, it takes more than 99 laws to explain about 3%.” So quipped MIT finance professor Andrew Lo at a dinner I once attended. Economists, he added, consequently suffer from physics envy.” https://hbr.org/2005/10/beware-of-economists-bearing-greek-symbols.
According to Douglass North (North1999), “In fact, Samuelson’s assertion was that if the world is nonergodic, economics is not a science.” https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1165&context=delpf.
Due to compounding effects, investors’ wealth is a convex function of realised returns. Hence, volatility plays a critical role in the growth of wealth. Hence, over the long run, over one single realised return path, the investor’s growth rate should approach the median, not the mean, meaning that volatility plays a crucial role in long-term wealth levels.
This is how the famous Saint Petersburg paradox was solved.
Rates are compounded, hence the multiplicative process over time.
Peters (2019) recognises that optimising time average growth rates is a null model, and as such, it has all the shortcomings null models have. At least this null model is conceptually clearer and less subjective. Note that loss aversion can also be handled through non-ergodicity without having to use a behavioural economics toolkit.
Future dividends are discounted. Here again discounting/compounding introduces non-linearities.
Again, wealth compounds over time.
Even though the causality may work both ways.
See Teich (2006) for more details.
The clustering can be triggered by various factors including preferential attachment, criticality, multiplicative processes etc.
Pure risk is, in my view, pure as, under non-linear dynamics, unknown unknowns strike unexpectedly. Add path dependency and the traditional cause-effect and the law of large numbers break down (see Thurner et al. 2018, p. 85).
With the exception of the Cory Lamberts of this world.
One of his articles is titled in the same vein: Understanding is a poor substitute for convexity (antifragility). www.edge.org.
As the reader may have guessed, Ulrich Tuzzi is Musil's Ulrich’s grandson!
Starting on page 258.
Libraries are the archetype of antifragility!
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Please note that the correct German spelling for Fingerspitzengefühl has been used in this text. The word was not correctly written in Orio's original quote (Giarini 2002, p. 159).
The original online version of this article was revised due to an incorrect word in one sentence on page 255.
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Briys, E. Fingerspitzengefühl. Geneva Pap Risk Insur Issues Pract 46, 248–265 (2021). https://doi.org/10.1057/s41288-021-00214-w
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DOI: https://doi.org/10.1057/s41288-021-00214-w