April 25, 2025 • 35 mins
Cautionary Tales returns with a new episode on May 2nd.
Both of the world’s greatest economists, Irving Fisher and John Maynard Keynes, thought they could see into the future and make a killing on the stock market - and then both were wiped out by the Wall Street Crash. One died a pauper, the other millionaire. What does it take to bounce back from ruin? Oh... and UFOs.
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Speaker 1 (00:15):
Pushkin Cautionary Tales is teaming up with the Risky Business
podcast for a special Q and A collaboration. Hosts Maria
Konikova and Nate Silver, both journalists who moonlight as high
stakes poker players, are joining me to answer your questions economics, scammers, robots,
(00:37):
board games, poker, human instinct, something that sparked your interest
from either podcast. We are up for any question. Just
send your.
Speaker 2 (00:45):
Ideas to Tales at pushkin dot fm.
Speaker 1 (01:01):
Late one evening on the twentieth of December nineteen fifty four,
a small group of people sat together in a living
room in Oak Park, a suburb of Chicago, waiting for
the end of the world. They were led by a
woman named Dorothy Martin, who was a conduit for messages
from aliens or God, or both. The messages were alarming.
(01:28):
At midnight, the aliens would land a flying saucer in
the backyard and convey the true believers to the safety
of a planet named Clarion. Then at dawn, a cataclysmic
flood would destroy much of the world. Now, at five
(01:48):
minutes to midnight, the believers were waiting. Some were disheveled
since the aliens had demanded they remove all metal from
their clothing. Bra clips, buttons, even trousers. Zips had been
hastily slashed away by fumbling hands wielding scissors or razors.
Some of the group were there out of mere curiosity.
(02:08):
Others had sacrificed almost everything for this moment. They'd quit
their jobs, given away their possessions, and said farewell to
their families. But what distinguishes this particular apocalyptic cult from
all the others is that a small team of social scientists,
led by the world renowned psychologist Leon Festinger, had managed
(02:32):
to infiltrate it. They were there to witness what happened
at midnight, and in particular, how the group reacted to
the appearance or possibly the non appearance, of the aliens.
Gather round, and I'll tell you another cautionary tale. I'll
(03:21):
tell you all about what happened with Leon Festinger, Dorothy
Martin and the aliens in due course, but for a moment,
let's leave them there in Chicago, anxiously waiting for the
end of days, because I have another story to tell you.
And it's not a story about crazy cult members, but
about two economists, Indeed, two of the most celebrated economists
(03:46):
who ever lived? And what do these economists have to
do with a UFO cult in nineteen fifties Chicago. It's
very simple. Just like Dorothy Martin, they tried to see
into the future, and trying to see into the future
it's a dangerous business. One of the economists I want
to tell you about is the great British polymath John
(04:09):
Maynard Keynes. You may have heard of him. He's a
colossal figure in economics, overturning the ideas that had gone
before him and then reshaping the post war economic system.
Many economists still call themselves Knesians, like him or hate him.
In economics, you can't get much bigger than John Maynard Keynes,
(04:30):
except that in his day you could. When Caines first
strode the world stage, he did so in the shadow
of another man. In nineteen twenty four, The Wall Street
Journal tried to describe John Maynard Keynes, this up and
coming economist. They reached for a comparison that everyone in
(04:51):
America would have known, Caines said the Journal was England's
Irving Fisher. And Irving Fisher was the most famous economist
on the planet. But Irving Fisher wasn't just more famous
than Kiness. He was brilliant. There's one Nobel Prize winner
put it.
Speaker 3 (05:11):
Fisia was anywhere from a decade to two generations ahead
of his time.
Speaker 1 (05:17):
Some would say he was the greatest economist who ever lived.
But if you're thinking I don't hear much about Irving
Fisher these days, you're right. He's not the household name
he was one hundred years ago. If you're wondering why
his reputation faded while Canes is lived on, that is
(05:37):
what our cautionary tale is all about. Irving Fisher and
John Maynard Keynes were very different men in some important ways,
but they also had a great deal in common. Both
were stars at their universities, Canes at Cambridge and England,
Fisher at Yale. They were both physically impressive. Canes was
(05:59):
thin and very tall, with piercing eyes. Fisher had the
broad chest of a competitive rower. They were both skilled
writers charismatic speakers too. After witnessing Canes giving a speech,
the Canadian diplomat Douglas Lapan was moved to write.
Speaker 4 (06:16):
I am spellbound. This is the most beautiful creature I
have ever listened to. Does he belong to our species
or is he from some other order?
Speaker 1 (06:27):
And Fisher and Kanes were also both active investors. They
weren't just Ivory tower economists, but men who believe that
their mastery of economics would enable them to make profitable investments.
That is where their interest in forecasting came in. An
academic economist might be content to describe and explain the
(06:48):
economist's past, but to make money, Fisher and Canes would
have to catch a glimpse of the economy's future. Let's
meet the young Irving Fisher.
Speaker 5 (06:59):
How much there is I want to do? I always
feel that I haven't time to accomplish what I wish.
I want to read much, I want to write a
great deal. I want to make money.
Speaker 1 (07:12):
He's writing from Yale to an old school friend. Money
was important to Fisher. His father had died of tuberculosis
the very week that Irving had arrived at Yale. The
young man needed to scramble for funds throughout his studies.
He understood what it was to struggle financially while surrounded
(07:33):
by wealth. At the age of twenty six, however, Fisher
found himself with a small fortune at his disposal. He'd
married a childhood playmate Margaret Hazard, who was the daughter
of a wealthy industrialist. Irving and Margaret's wedding was sumptuous
enough to be covered by the New York Times. With
two thousand invited guests, three ministers, an extravagant lunch, and
(07:57):
a wedding cake weighing sixty pounds, They commenced a fourteen
month European honeymoon and returned to a brand new mansion
in New Haven. It had been built in their absence
as a wedding present from Margaret's father, and was furnished
with a library, a music room, and spacious offices. If
(08:18):
marrying your childhood sweetheart sounds a little too wholesome, I'm
just getting started. There are three things you need to
know about Irving Fisher. The first is that he was
a health fanatic. He abstained from alcohol, tobacco, meat, tea, coffee,
and chocolate. One dinner guest enjoyed his hospitality while noting
(08:41):
his quirkiness.
Speaker 6 (08:42):
Well, I ate right through my succession of delicious courses.
He dined on a vegetable and a raw egg.
Speaker 1 (08:52):
He founded the Life Extension Institute and persuaded William Taft,
who had just stepped down as president to be its chairman.
In nineteen fifteen, when he was nearly fifty years old,
he published a book titled How to Live. How to
Live Now, that's some real ambition. It was a huge bestseller,
(09:12):
the freeconomics of its day, and from a modern perspective,
it's hilarious.
Speaker 5 (09:17):
I advocate a sunbath, common sense must dictate its intensity
and duration. It is important to practice thorough mastication, chewing
to the point of natural involuntary swallowing.
Speaker 1 (09:30):
He even adds a discussion of the correct angle between
the feet while walking.
Speaker 5 (09:35):
About seven or eight degrees of outtying in each foot.
Speaker 1 (09:39):
And there's a short section on eugenics, which really hasn't
aged well. But while it's easy to laugh, How to
Live is in many ways as far ahead of its
time as Fisher's economic analysis, describing exercises preaching mindfulness, and
at a time when the majority of doctors were smokers,
correctly warning that tobacco causes cancer. The second thing you
(10:03):
need to know about Irving was that he believed in
the power of rational quantified analysis.
Speaker 5 (10:09):
In the modern study of scientific clothing, there is a
new unit, the cloe. This is a technical unit for
measuring the warming power of clothing.
Speaker 1 (10:19):
There's also the money. That's the third thing you need
to know. Irving Fisher was rich, and not just because
of his wife's inheritance. Making money was a matter of
pride for Fisher. There were the book royalties from How
to Live. There were his inventions, most notably a forerunner
of the rolodex, a way of organizing business cards. He
(10:40):
sold that invention to a stationary company for six hundred
and sixty thousand dollars in cash, many millions of dollars
in today's terms. Fisher turned his academic research into a
major business operation called the Index Number Institute. It sold data,
forecasts and analysis as a syndicated package to newspapers across
(11:02):
the United States. He called it Irving Fisher's business Page.
With such a platform, Fisher was able to evangelize about
his approach to investment, which broadly speaking, was ti bet
on American growth by buying shares in the new industrial
corporations using borrowed money. Such borrowing is called leverage since
(11:24):
it magnifies both profits and losses, but during the nineteen twenties,
stock market investors had few losses to worry about. Share
prices were soaring, Fisher wrote to his old childhood friend
to inform him that his ambition had been fulfilled.
Speaker 5 (11:42):
We are all making a lot of money.
Speaker 1 (11:46):
In the summer of nineteen twenty nine. Irving Fisher was
a best selling author, inventor, data pioneer, friend of presidents, entrepreneur,
health campaigner, syndicated columnist, and the greatest academic economist of
his generation, and in that summer of nineteen twenty nine,
a millionaire many times over. Irving Fisher was able to
(12:08):
boast to his son that a renovation of the family
mansion had been paid for not by the hazard family money,
but by Irving Fisher himself. That achievement mattered to him.
Fisher's own father hadn't lived to see his seventeen year
old boy grow into one of the most respected figures
(12:30):
of the age. As Irving and his son watched a
mansion reshaped before them, he could perhaps be forgiven his pride.
(12:54):
John Maynard Keynes was the ultimate insider. As a schoolboy,
he was educated at Eton College, just like Britain's first
prime minister and nineteen others. Since like his father, he
became a senior academic, a fellow of King's College, the
most spectacular of all the Cambridge colleges. His job during
(13:16):
the First World War was managing both debt and currency
on behalf of the British Empire. He had barely turned thirty.
He knew everyone. He whispered in the ear of prime ministers.
He had the inside track on whatever was going on
in the British economy.
Speaker 5 (13:34):
Maynard, Bank of England.
Speaker 4 (13:36):
Here, I just wanted to let you know that interest
rates will be rising tomorrow.
Speaker 7 (13:40):
There's a good chap.
Speaker 1 (13:43):
But this child of the British establishment was a very
different person to his American rival, Irving Fisher. He loved
fine wines and rich food. He gambled at Monte Carlo.
His sex life was more like a nineteen seventies pop
star than a nineteen hundred's economist, bisexual, polyamorous, eventually settling
down not with his childhood sweetheart but with a Russian ballerina.
(14:08):
One of Kynes's ex boyfriends was the best man at
their wedding, and Caines was adventurous in other ways too.
In nineteen eighteen, for example, as the First World War
was raging and the German army was camped outside Paris,
Caines caught wind of the fact that in Paris, the
great French Impressionist artist Edgar de Gart was about to
(14:31):
auction his vast collection of pieces by France's greatest nineteenth
century painters, and so Caines embarked on an insane adventure. First,
he spoke to the Chancellor of the Exchequer, the UK's
senior treasury minister, asking for a fund for purchasing art
twenty thousand pounds. That's millions in today's money.
Speaker 3 (14:54):
Maynard, It's the first occasion that I've ever known you
in favor of any expenditure whatsoever.
Speaker 1 (15:00):
Remember, the British Treasury was four years into fighting the
most devastating war the planet had yet seen, but Caines
knew to get his way.
Speaker 7 (15:10):
My picture coup was a whirlwind affair, carried out in
a day and a half before anyone had time to
reflect on what they were doing. I think the Chancellor
was very much amused at my wanting to buy pictures,
and eventually let me have my way as a sort.
Speaker 1 (15:24):
Of a joke, some joke.
Speaker 7 (15:27):
Escorted by destroyers and a silver airship watching overhead.
Speaker 1 (15:32):
Canes crossed the Channel to France with the director of
London's National Gallery, who had shaved off his mustache so
that nobody recognized him. And just as Dagar's auction begins,
the German artillery starts up. Some people panic and hurry out.
Canes pounces, buying twenty seven pieces at rock bottom prices
(15:54):
for the National Gallery, and he buys a few for himself,
including a Sizan, which these days would be regarded as
a better buy than anything the National Gallery director chose.
It costs Canes just three hundred and seventy. They then
flee back to the English Channel and cross home with
(16:14):
a convoy of hospital ships. Exhausted after his non stop adventure,
Camees calls in on some friends.
Speaker 7 (16:21):
I've got a Sazan in my suitcase. It was too
heavy for me to carry, so I've left it in
the ditch behind the gate.
Speaker 1 (16:28):
What Irving Fisher would have made of it all, I
do not know yet. Like Fisher, Caines was also pursuing
an investment career. It wasn't just in art. He set
up what some historians describe as the first hedge fund
to speculate on currency movements. He raised money from rich
friends and from his own father, to whom he made
(16:49):
the not entirely reassuring comment.
Speaker 7 (16:51):
Win or lose. This high stakes gambling amuses me.
Speaker 1 (16:55):
Initiallykines made money fast, but then a brief spasm in
the currency markets wiped out his fund in nineteen twenty awkward.
But he went back to his investors, including his own father,
and asked them to trust him with more of their money.
Speaker 7 (17:12):
I am not in a position to risk any capital myself,
having quite exhausted my resources.
Speaker 1 (17:19):
Remember this is John Maynard Kaynes, the man who persuaded
a wartime government to speculate in a Parisian art auction.
The man, a Canadian diplomat, mistook for an angel.
Speaker 7 (17:31):
I anticipate very substantial profits with very good probability if
you are prepared to stand the racket for a couple
of months.
Speaker 1 (17:38):
Of course, they gave him the money he wanted. Caines
was back in profit by nineteen twenty two. So, having
made a small fortune, lost it and made it again.
Caines turned to the vast investments of his own college,
King's Cambridge. Caines persuaded his fellow academics to let him
(18:00):
adopt a radical money making strategy. He would forecast booms
and recessions and move in and out of different economic sectors.
A call such an approach makes sense only if you
actually can forecast recessions. But Kines was the leading economist
in the country and a man who remember would get
friendly phone calls from the Bank of England. If anyone
(18:24):
could see into the future of the British economy, it
was John Maynard Keynes. By late nineteen twenty nine, both
Irving Fisher and John Maynard Keynes were rich, famous, respected,
and standing on the brink of a financial precipice. The
(18:44):
cataclysmic Wall Street Crash followed by the Great Depression, the
worst peacetime economic calamity to befall the Western world, and
the two greatest economists of the age, Fisher and Canes,
both of them failed to see it coming. Experts don't
(19:10):
have a stellar reputation for forecasting. In nineteen eighty seven,
a young Canadian born psychologist named Philip Tetlock became curious
about the entire prognostication racket. Tetlock had been interviewing Cold
War experts, and he soon found himself frustrated by their
wildly different predictions, their refusal to change their minds when
(19:33):
they were wrong and the endless excuses for their forecasting failures.
Tetlock's response was patient, painstaking, and quietly brilliant. He began
to collect forecasts from almost three hundred experts, eventually accumulating
twenty seven thousand, five hundred predictions. He focused on politics
(19:54):
and geopolitics, throwing in a few questions from areas such
as economics. Tetlock sought clearly defined questions, enabling him, with
the benefit of hindsight, to pronounce each forecast right or wrong.
Then Tetlock simply waited while the results rolled in for
eighteen years. Tetlock published his conclusions in two thousand and
(20:18):
five in a subtle and scholarly book, Expert Political Judgment.
He found that his experts were terrible forecasters, both in
the simple sense that what they predicted often didn't happen,
and in the deeper sense that the experts had little
idea of when they should be confident and when they
should admit that they didn't have a clue. Expert forecasts
(20:40):
were barely more accurate than chimpanzees throwing darts. Most people
hearing about Tetlock's research simply conclude that either the world
is too complex to forecast, or that experts are too
stupid to forecast it, or both. On April Fool's Day
(21:00):
in twenty thirteen, of all days, I received an email
from Philip Tetlock inviting me to join what he described as.
Speaker 4 (21:09):
A major new research program.
Speaker 1 (21:12):
It was funded by the US Intelligence Services. This program
continued and expanded Tetlock's long running study in the form
of a forecasting tournament.
Speaker 4 (21:22):
You would simply log onto a website, give your best
judgment about matter as you may be following anyway, and
update that judgment if and when you feel it should be.
When time passes and forecasts are judged, you could compare
your results with those of others.
Speaker 1 (21:36):
More than twenty thousand people signed up, some professionals and
some amateurs. Tetlock and his colleagues ran experiments on this
army of volunteers, giving them different kinds of training or
assembling them into teams to see if that helped. I
didn't join in. I told myself I was too busy.
I suppose I was chickening out too. But the fundamental
(21:59):
reason that I didn't participate was because Tetlock's work had
already persuaded me that the forecasting task was impossible, but
it wasn't. This vast new tournament identified a select group
of people whose forecasts, while by no means perfect, were
vastly better than the dark throwing chimp standard. Tetlock, with
(22:22):
an uncharacteristic touch of hyperbole, called them super forecasters. So
what makes a super forecaster? It was more a matter
of personality. The super forecasters are what psychologists call actively
open minded thinkers, people who didn't cling too tightly to
(22:42):
a single approach, who were comfortable abandoning an old view
in the light of fresh evidence or new arguments, and
who embraced disagreements with others as an opportunity to learn
the secret of super forecasting. It's a willingness to change
your mind. Philip Tetlock's work on super forecasting has rightly
(23:13):
attracted a huge amount of attention, But I think there's
a message in that work that's often overlooked. A willingness
to change your mind doesn't just help you make better forecasts,
it helps you cope with failed predictions too. Let's return
to John Maynard Keynes and Irving Fisher. Both of them, remember,
(23:35):
had persuaded themselves that their expertise in economics should lead
to investment success. Both of them were wrong. The stock
market crash of nineteen twenty nine caught each of them
by surprise. Both lost a lot of money. Yet here's
a curious fact. Despite his failure, Canes dyed a millionaire
(23:58):
and perhaps the most celebrated economist in the world. Fisher
made basically the same mistake, yet it ruined both his
finances and his reputation. Why the difference in their fortunes.
In a way, the answer is ridiculously simple. Caines changed
his mind and changed his investment strategy. Fisher changed neither,
(24:25):
But that only raises a deeper question. Why did Caines
change while Fisher didn't. Caines had lost one fortune in
nineteen twenty and survived the experience by nineteen twenty nine.
Before the crash, he was again pondering his shortcomings. His
(24:46):
investment strategy, based on the assumption that he could predict
the ups and downs of the business cycle, wasn't working out.
He started thinking about how to change his approach. Caines
lost more than eighty percent of his net worth in
nineteen twenty nine, but even afterwards he was still rich.
In short, he had plenty of evidence that had made
(25:07):
a mistake. He had experience of making mistakes in the
past and bouncing back, and he was still comfortably off.
Why not change. By the early nineteen thirties, Caines had
abandoned business cycle forecasting entirely. The greatest economist in the
world had decided he just couldn't do it well enough
to make money.
Speaker 7 (25:28):
As time goes on, I get more and more convinced
that the right method in investment is to put fairly
large sums into enterprises which one thinks one knows something
about and in the management of which one thoroughly believes.
Speaker 1 (25:42):
Forget what the economy is doing. Just find great companies
and invest for the long term. And if that approach
sounds familiar, it's most famously associated with Warren Buffett, the
world's richest investor, that a man who loves to quote
John Maynard Kynes. Kaines is rightly viewed today as a
successful investor at King's College. He recovered from the poor
(26:06):
performance of the early years. He secured high returns with
modest risks, outperforming the stock market as a whole many
times over. It's an impressive reward for being able to
change your mind. Irving Fisher was in a very different situation.
(26:28):
Irving Fisher's business page had graced newspapers across the country.
When things turned sour, Fisher was a scapegoat in front
of the entire United States. The New York Times reported
that the bubble had been blamed on.
Speaker 6 (26:42):
US Treasury Secretary Mellon, former President Coolidge, and Professor Irving
Fisher of Yale.
Speaker 1 (26:49):
And Professor Irving Fisher of Yale was in deep financial trouble.
The fact that his investments were made using leverage meant
that both gains and losses were magnified. What had seemed
like brilliance before the crash was catastrophic afterwards. Fisher was
staring in the face of bankrupt see the loss of
(27:10):
his house, his businesses, everything. For example, one of Fisher's
major investments was in the stationery company Remington Rand. It
was fifty eight dollars a share before the crash, dropping
to twenty eight dollars within a few months. At that point,
Fisher borrowed more money to invest, but the share price
kept falling all the way to one dollar. You could
(27:34):
imagine his desperation, But surely, being in such a tight
spot would have made Fisher more likely to adapt his strategy.
Not necessarily.
Speaker 6 (27:50):
I've received another message. Everyone get your overcoats and stand by. Okay, okay, guys, okay,
everyone sit quietly in the living room. We shall act
as if this were just an ordinary gathering of friends.
Speaker 1 (28:06):
Remember Dorothy Martin and her Ua Foe cult. They've persuaded
themselves that the world is about to be flooded and
that they will be saved at midnight by aliens delivering
them safely to planet Clarion. And remember too, that the
psychologist Leon Festinger has infiltrated the cult. His researchers were
there that night to observe what happened. Festinger had a
(28:30):
striking prediction that when the aliens didn't appear, many cultists
wouldn't be discouraged by the clear failure of missus Martin's
prophecy or feel angry and betrayed. Instead, they would redouble
their efforts to believe.
Speaker 6 (28:48):
Another reporter, no doubt. Just hang up. Our preparations cannot
be interrupted. We'll call them later if we have anything
for them.
Speaker 2 (28:57):
As the clock has midnight.
Speaker 1 (28:59):
That's wrong with that.
Speaker 4 (29:01):
Take a couple of minutes.
Speaker 7 (29:02):
That clock is love. Look at the other clock. I
said it myself this afternoon, and it's not midnight yet.
Speaker 6 (29:10):
One minute to midnight, and not a.
Speaker 2 (29:12):
Plan has gonistry.
Speaker 1 (29:16):
At midnight, the aliens did not appear. Nobody said a word.
One of the more casual cult members, who had expressed
skepticism before, picked up his coat and hat and walked out,
no comment.
Speaker 7 (29:35):
We have nothing to tell you.
Speaker 1 (29:37):
People tried to make sense of what was happening, or
rather not happening. The theories grew ever wilder. People were confused, exhausted.
Leon Festinger's observers tried to ask why the saucer hadn't come.
The group didn't want to talk about it, and then
at four o'clock in the morning, Dorothy Martin put her
(30:01):
face in her hands and began to weep. One of
Festinger's researchers stepped outside for some air and discussed the
situation with a leading cult member.
Speaker 3 (30:13):
I've had a long way to go. I've given up
just about everything. I've cut every tie, I burned every bridge.
I've turned my back on the world. I can't afford
to doubt. I have to believe.
Speaker 1 (30:27):
They went back inside. But at four forty five am,
Dorothy Martin, with hand shaking, picked up a pencil and
began to write. It was, she said, a new message.
Because of the faith shown by that small group of people,
(30:48):
the earth had been spared destruction. A higher power would
save not only the small cult but the entire human race.
At this the cultists acquired new fervor, going out to
greet the dawn and tell people the good news. They
suddenly became evangelists, issuing stufatements to the press rather than
(31:10):
batting them away.
Speaker 5 (31:12):
Dorothy, is this the first time you've called the newspaper yourself?
Speaker 6 (31:16):
Oh? Yes, this is the first time I've ever called them.
I've never had anything to tell them before, but now
I feel it's urgent.
Speaker 3 (31:26):
We should call the Associated Press and the Oneida Press.
This thing is pretty important. It's a very big thing,
bigger than just one newspaper.
Speaker 2 (31:35):
I don't think the creator would want this to be
an exclusive story, you know, definitely not.
Speaker 6 (31:40):
Oh no, right, correct, It's got to be for everybody.
Speaker 7 (31:43):
It's for everybody who wret.
Speaker 1 (31:45):
Yes, Festinger had been right. His view that the cultists
would redouble their efforts to believe in the face of
failure was based on a theory he called cognitive dissonance.
Cognitive dissonance predicts that people will start to squirm when
they hold contradictory thoughts, such as it's worth quitting my
(32:05):
job in order to be collected by aliens, and the
aliens did not show up. People often deny the obvious
in order to reduce the discomfort, and the more suffering
people have put themselves through on behalf of a belief,
the more likely they are to cling onto it. Otherwise,
all that suffering would seem ridiculous, would it not. Festinger's
(32:33):
theory applies perfectly to poor Irving Fisher in the nineteen thirties.
He believed himself to be a man of logic and reason,
and yet he was deeply in debt, the most famous
financial basket case in the country. In fact, if people
today know just one thing about Irving Fisher, it's this.
(32:57):
Two weeks before the Wall Street crash began, he was
quoted by The New York Times.
Speaker 5 (33:03):
Starks have reached what looks like a permanently high plateau.
Speaker 1 (33:08):
How do you away from that? Fisher went deeper and
deeper in debt to the taxman and to his brokers
towards the end of his life. He was a marginalized figure,
a widower, an easy target for scam artists and their
get rich quick schemes because he was always on the
(33:29):
lookout for a way to revive his fortune. He never did.
Although Caines had much in common with Fisher, he was
a different kind of character. Recall Kine's comment to his father, this.
Speaker 7 (33:44):
High stakes gambling amuses me.
Speaker 1 (33:46):
The Monte Carlo gambler knew all along that while investing
was a fascinating game, it was a game, nonetheless, and
one shouldn't take an unlucky throw of the dice too
much to heart. When his investments flopped, he tried something else.
Fisher and Canes died within a few months of each other,
(34:09):
not long after the end of the Second World War.
Fisher had become irrelevant. Caines was the most influential economist
on the planet, fresh from shaping the World Bank, the IMF,
and the entire global financial system. Looking back, Cain's reflected.
Speaker 7 (34:28):
My only regret is that I have not drunk more
champagne in my life.
Speaker 1 (34:33):
But he's remembered far more for words that he probably
never said. Nevertheless, he lived by them. When my information
changes I alter my conclusions. What do you do, sir?
If only he'd taught that lesson to Irving Fisher. You've
(34:59):
been listening to Cautionary Tales If you'd like to find
out more about the ideas in this episode, including links
to our sources, The show notes are on my website,
Tim Harford dot com. Cautionary Tales is written and presented
by me Tim Harford. Our producers are Ryan Dilly and
Marilyn Rust. The sound designer and mixer was Pascal Wise,
(35:21):
who also composed the amazing music. Starring in this season
are Alan Cumming, Archie Panjabi, Toby Stephens and Russell Tovey,
alongside Enzochilente, Ed Gochen, Melody Gutteridge, Massaamnroe and rufus Wright.
And introducing Malcolm Gladwell. Thanks to the team at Pushkin Industries,
(35:45):
Julia Barton, Heather Faine, Mea LaBelle, Carl Migliori, Jacob Weisberg
and of course the mighty Malcolm Gladwell. And thanks to
my colleagues at the Financial Times
Pushkin Cautionary Tales is teaming up with the Risky Business
podcast for a special Q and A collaboration. Hosts Maria
Konikova and Nate Silver, both journalists who moonlight as high
stakes poker players, are joining me to answer your questions economics, scammers, robots,
(00:37):
board games, poker, human instinct, something that sparked your interest
from either podcast. We are up for any question. Just
send your.
Speaker 2 (00:45):
Ideas to Tales at pushkin dot fm.
Speaker 1 (01:01):
Late one evening on the twentieth of December nineteen fifty four,
a small group of people sat together in a living
room in Oak Park, a suburb of Chicago, waiting for
the end of the world. They were led by a
woman named Dorothy Martin, who was a conduit for messages
from aliens or God, or both. The messages were alarming.
(01:28):
At midnight, the aliens would land a flying saucer in
the backyard and convey the true believers to the safety
of a planet named Clarion. Then at dawn, a cataclysmic
flood would destroy much of the world. Now, at five
(01:48):
minutes to midnight, the believers were waiting. Some were disheveled
since the aliens had demanded they remove all metal from
their clothing. Bra clips, buttons, even trousers. Zips had been
hastily slashed away by fumbling hands wielding scissors or razors.
Some of the group were there out of mere curiosity.
(02:08):
Others had sacrificed almost everything for this moment. They'd quit
their jobs, given away their possessions, and said farewell to
their families. But what distinguishes this particular apocalyptic cult from
all the others is that a small team of social scientists,
led by the world renowned psychologist Leon Festinger, had managed
(02:32):
to infiltrate it. They were there to witness what happened
at midnight, and in particular, how the group reacted to
the appearance or possibly the non appearance, of the aliens.
Gather round, and I'll tell you another cautionary tale. I'll
(03:21):
tell you all about what happened with Leon Festinger, Dorothy
Martin and the aliens in due course, but for a moment,
let's leave them there in Chicago, anxiously waiting for the
end of days, because I have another story to tell you.
And it's not a story about crazy cult members, but
about two economists, Indeed, two of the most celebrated economists
(03:46):
who ever lived? And what do these economists have to
do with a UFO cult in nineteen fifties Chicago. It's
very simple. Just like Dorothy Martin, they tried to see
into the future, and trying to see into the future
it's a dangerous business. One of the economists I want
to tell you about is the great British polymath John
(04:09):
Maynard Keynes. You may have heard of him. He's a
colossal figure in economics, overturning the ideas that had gone
before him and then reshaping the post war economic system.
Many economists still call themselves Knesians, like him or hate him.
In economics, you can't get much bigger than John Maynard Keynes,
(04:30):
except that in his day you could. When Caines first
strode the world stage, he did so in the shadow
of another man. In nineteen twenty four, The Wall Street
Journal tried to describe John Maynard Keynes, this up and
coming economist. They reached for a comparison that everyone in
(04:51):
America would have known, Caines said the Journal was England's
Irving Fisher. And Irving Fisher was the most famous economist
on the planet. But Irving Fisher wasn't just more famous
than Kiness. He was brilliant. There's one Nobel Prize winner
put it.
Speaker 3 (05:11):
Fisia was anywhere from a decade to two generations ahead
of his time.
Speaker 1 (05:17):
Some would say he was the greatest economist who ever lived.
But if you're thinking I don't hear much about Irving
Fisher these days, you're right. He's not the household name
he was one hundred years ago. If you're wondering why
his reputation faded while Canes is lived on, that is
(05:37):
what our cautionary tale is all about. Irving Fisher and
John Maynard Keynes were very different men in some important ways,
but they also had a great deal in common. Both
were stars at their universities, Canes at Cambridge and England,
Fisher at Yale. They were both physically impressive. Canes was
(05:59):
thin and very tall, with piercing eyes. Fisher had the
broad chest of a competitive rower. They were both skilled
writers charismatic speakers too. After witnessing Canes giving a speech,
the Canadian diplomat Douglas Lapan was moved to write.
Speaker 4 (06:16):
I am spellbound. This is the most beautiful creature I
have ever listened to. Does he belong to our species
or is he from some other order?
Speaker 1 (06:27):
And Fisher and Kanes were also both active investors. They
weren't just Ivory tower economists, but men who believe that
their mastery of economics would enable them to make profitable investments.
That is where their interest in forecasting came in. An
academic economist might be content to describe and explain the
(06:48):
economist's past, but to make money, Fisher and Canes would
have to catch a glimpse of the economy's future. Let's
meet the young Irving Fisher.
Speaker 5 (06:59):
How much there is I want to do? I always
feel that I haven't time to accomplish what I wish.
I want to read much, I want to write a
great deal. I want to make money.
Speaker 1 (07:12):
He's writing from Yale to an old school friend. Money
was important to Fisher. His father had died of tuberculosis
the very week that Irving had arrived at Yale. The
young man needed to scramble for funds throughout his studies.
He understood what it was to struggle financially while surrounded
(07:33):
by wealth. At the age of twenty six, however, Fisher
found himself with a small fortune at his disposal. He'd
married a childhood playmate Margaret Hazard, who was the daughter
of a wealthy industrialist. Irving and Margaret's wedding was sumptuous
enough to be covered by the New York Times. With
two thousand invited guests, three ministers, an extravagant lunch, and
(07:57):
a wedding cake weighing sixty pounds, They commenced a fourteen
month European honeymoon and returned to a brand new mansion
in New Haven. It had been built in their absence
as a wedding present from Margaret's father, and was furnished
with a library, a music room, and spacious offices. If
(08:18):
marrying your childhood sweetheart sounds a little too wholesome, I'm
just getting started. There are three things you need to
know about Irving Fisher. The first is that he was
a health fanatic. He abstained from alcohol, tobacco, meat, tea, coffee,
and chocolate. One dinner guest enjoyed his hospitality while noting
(08:41):
his quirkiness.
Speaker 6 (08:42):
Well, I ate right through my succession of delicious courses.
He dined on a vegetable and a raw egg.
Speaker 1 (08:52):
He founded the Life Extension Institute and persuaded William Taft,
who had just stepped down as president to be its chairman.
In nineteen fifteen, when he was nearly fifty years old,
he published a book titled How to Live. How to
Live Now, that's some real ambition. It was a huge bestseller,
(09:12):
the freeconomics of its day, and from a modern perspective,
it's hilarious.
Speaker 5 (09:17):
I advocate a sunbath, common sense must dictate its intensity
and duration. It is important to practice thorough mastication, chewing
to the point of natural involuntary swallowing.
Speaker 1 (09:30):
He even adds a discussion of the correct angle between
the feet while walking.
Speaker 5 (09:35):
About seven or eight degrees of outtying in each foot.
Speaker 1 (09:39):
And there's a short section on eugenics, which really hasn't
aged well. But while it's easy to laugh, How to
Live is in many ways as far ahead of its
time as Fisher's economic analysis, describing exercises preaching mindfulness, and
at a time when the majority of doctors were smokers,
correctly warning that tobacco causes cancer. The second thing you
(10:03):
need to know about Irving was that he believed in
the power of rational quantified analysis.
Speaker 5 (10:09):
In the modern study of scientific clothing, there is a
new unit, the cloe. This is a technical unit for
measuring the warming power of clothing.
Speaker 1 (10:19):
There's also the money. That's the third thing you need
to know. Irving Fisher was rich, and not just because
of his wife's inheritance. Making money was a matter of
pride for Fisher. There were the book royalties from How
to Live. There were his inventions, most notably a forerunner
of the rolodex, a way of organizing business cards. He
(10:40):
sold that invention to a stationary company for six hundred
and sixty thousand dollars in cash, many millions of dollars
in today's terms. Fisher turned his academic research into a
major business operation called the Index Number Institute. It sold data,
forecasts and analysis as a syndicated package to newspapers across
(11:02):
the United States. He called it Irving Fisher's business Page.
With such a platform, Fisher was able to evangelize about
his approach to investment, which broadly speaking, was ti bet
on American growth by buying shares in the new industrial
corporations using borrowed money. Such borrowing is called leverage since
(11:24):
it magnifies both profits and losses, but during the nineteen twenties,
stock market investors had few losses to worry about. Share
prices were soaring, Fisher wrote to his old childhood friend
to inform him that his ambition had been fulfilled.
Speaker 5 (11:42):
We are all making a lot of money.
Speaker 1 (11:46):
In the summer of nineteen twenty nine. Irving Fisher was
a best selling author, inventor, data pioneer, friend of presidents, entrepreneur,
health campaigner, syndicated columnist, and the greatest academic economist of
his generation, and in that summer of nineteen twenty nine,
a millionaire many times over. Irving Fisher was able to
(12:08):
boast to his son that a renovation of the family
mansion had been paid for not by the hazard family money,
but by Irving Fisher himself. That achievement mattered to him.
Fisher's own father hadn't lived to see his seventeen year
old boy grow into one of the most respected figures
(12:30):
of the age. As Irving and his son watched a
mansion reshaped before them, he could perhaps be forgiven his pride.
(12:54):
John Maynard Keynes was the ultimate insider. As a schoolboy,
he was educated at Eton College, just like Britain's first
prime minister and nineteen others. Since like his father, he
became a senior academic, a fellow of King's College, the
most spectacular of all the Cambridge colleges. His job during
(13:16):
the First World War was managing both debt and currency
on behalf of the British Empire. He had barely turned thirty.
He knew everyone. He whispered in the ear of prime ministers.
He had the inside track on whatever was going on
in the British economy.
Speaker 5 (13:34):
Maynard, Bank of England.
Speaker 4 (13:36):
Here, I just wanted to let you know that interest
rates will be rising tomorrow.
Speaker 7 (13:40):
There's a good chap.
Speaker 1 (13:43):
But this child of the British establishment was a very
different person to his American rival, Irving Fisher. He loved
fine wines and rich food. He gambled at Monte Carlo.
His sex life was more like a nineteen seventies pop
star than a nineteen hundred's economist, bisexual, polyamorous, eventually settling
down not with his childhood sweetheart but with a Russian ballerina.
(14:08):
One of Kynes's ex boyfriends was the best man at
their wedding, and Caines was adventurous in other ways too.
In nineteen eighteen, for example, as the First World War
was raging and the German army was camped outside Paris,
Caines caught wind of the fact that in Paris, the
great French Impressionist artist Edgar de Gart was about to
(14:31):
auction his vast collection of pieces by France's greatest nineteenth
century painters, and so Caines embarked on an insane adventure. First,
he spoke to the Chancellor of the Exchequer, the UK's
senior treasury minister, asking for a fund for purchasing art
twenty thousand pounds. That's millions in today's money.
Speaker 3 (14:54):
Maynard, It's the first occasion that I've ever known you
in favor of any expenditure whatsoever.
Speaker 1 (15:00):
Remember, the British Treasury was four years into fighting the
most devastating war the planet had yet seen, but Caines
knew to get his way.
Speaker 7 (15:10):
My picture coup was a whirlwind affair, carried out in
a day and a half before anyone had time to
reflect on what they were doing. I think the Chancellor
was very much amused at my wanting to buy pictures,
and eventually let me have my way as a sort.
Speaker 1 (15:24):
Of a joke, some joke.
Speaker 7 (15:27):
Escorted by destroyers and a silver airship watching overhead.
Speaker 1 (15:32):
Canes crossed the Channel to France with the director of
London's National Gallery, who had shaved off his mustache so
that nobody recognized him. And just as Dagar's auction begins,
the German artillery starts up. Some people panic and hurry out.
Canes pounces, buying twenty seven pieces at rock bottom prices
(15:54):
for the National Gallery, and he buys a few for himself,
including a Sizan, which these days would be regarded as
a better buy than anything the National Gallery director chose.
It costs Canes just three hundred and seventy. They then
flee back to the English Channel and cross home with
(16:14):
a convoy of hospital ships. Exhausted after his non stop adventure,
Camees calls in on some friends.
Speaker 7 (16:21):
I've got a Sazan in my suitcase. It was too
heavy for me to carry, so I've left it in
the ditch behind the gate.
Speaker 1 (16:28):
What Irving Fisher would have made of it all, I
do not know yet. Like Fisher, Caines was also pursuing
an investment career. It wasn't just in art. He set
up what some historians describe as the first hedge fund
to speculate on currency movements. He raised money from rich
friends and from his own father, to whom he made
(16:49):
the not entirely reassuring comment.
Speaker 7 (16:51):
Win or lose. This high stakes gambling amuses me.
Speaker 1 (16:55):
Initiallykines made money fast, but then a brief spasm in
the currency markets wiped out his fund in nineteen twenty awkward.
But he went back to his investors, including his own father,
and asked them to trust him with more of their money.
Speaker 7 (17:12):
I am not in a position to risk any capital myself,
having quite exhausted my resources.
Speaker 1 (17:19):
Remember this is John Maynard Kaynes, the man who persuaded
a wartime government to speculate in a Parisian art auction.
The man, a Canadian diplomat, mistook for an angel.
Speaker 7 (17:31):
I anticipate very substantial profits with very good probability if
you are prepared to stand the racket for a couple
of months.
Speaker 1 (17:38):
Of course, they gave him the money he wanted. Caines
was back in profit by nineteen twenty two. So, having
made a small fortune, lost it and made it again.
Caines turned to the vast investments of his own college,
King's Cambridge. Caines persuaded his fellow academics to let him
(18:00):
adopt a radical money making strategy. He would forecast booms
and recessions and move in and out of different economic sectors.
A call such an approach makes sense only if you
actually can forecast recessions. But Kines was the leading economist
in the country and a man who remember would get
friendly phone calls from the Bank of England. If anyone
(18:24):
could see into the future of the British economy, it
was John Maynard Keynes. By late nineteen twenty nine, both
Irving Fisher and John Maynard Keynes were rich, famous, respected,
and standing on the brink of a financial precipice. The
(18:44):
cataclysmic Wall Street Crash followed by the Great Depression, the
worst peacetime economic calamity to befall the Western world, and
the two greatest economists of the age, Fisher and Canes,
both of them failed to see it coming. Experts don't
(19:10):
have a stellar reputation for forecasting. In nineteen eighty seven,
a young Canadian born psychologist named Philip Tetlock became curious
about the entire prognostication racket. Tetlock had been interviewing Cold
War experts, and he soon found himself frustrated by their
wildly different predictions, their refusal to change their minds when
(19:33):
they were wrong and the endless excuses for their forecasting failures.
Tetlock's response was patient, painstaking, and quietly brilliant. He began
to collect forecasts from almost three hundred experts, eventually accumulating
twenty seven thousand, five hundred predictions. He focused on politics
(19:54):
and geopolitics, throwing in a few questions from areas such
as economics. Tetlock sought clearly defined questions, enabling him, with
the benefit of hindsight, to pronounce each forecast right or wrong.
Then Tetlock simply waited while the results rolled in for
eighteen years. Tetlock published his conclusions in two thousand and
(20:18):
five in a subtle and scholarly book, Expert Political Judgment.
He found that his experts were terrible forecasters, both in
the simple sense that what they predicted often didn't happen,
and in the deeper sense that the experts had little
idea of when they should be confident and when they
should admit that they didn't have a clue. Expert forecasts
(20:40):
were barely more accurate than chimpanzees throwing darts. Most people
hearing about Tetlock's research simply conclude that either the world
is too complex to forecast, or that experts are too
stupid to forecast it, or both. On April Fool's Day
(21:00):
in twenty thirteen, of all days, I received an email
from Philip Tetlock inviting me to join what he described as.
Speaker 4 (21:09):
A major new research program.
Speaker 1 (21:12):
It was funded by the US Intelligence Services. This program
continued and expanded Tetlock's long running study in the form
of a forecasting tournament.
Speaker 4 (21:22):
You would simply log onto a website, give your best
judgment about matter as you may be following anyway, and
update that judgment if and when you feel it should be.
When time passes and forecasts are judged, you could compare
your results with those of others.
Speaker 1 (21:36):
More than twenty thousand people signed up, some professionals and
some amateurs. Tetlock and his colleagues ran experiments on this
army of volunteers, giving them different kinds of training or
assembling them into teams to see if that helped. I
didn't join in. I told myself I was too busy.
I suppose I was chickening out too. But the fundamental
(21:59):
reason that I didn't participate was because Tetlock's work had
already persuaded me that the forecasting task was impossible, but
it wasn't. This vast new tournament identified a select group
of people whose forecasts, while by no means perfect, were
vastly better than the dark throwing chimp standard. Tetlock, with
(22:22):
an uncharacteristic touch of hyperbole, called them super forecasters. So
what makes a super forecaster? It was more a matter
of personality. The super forecasters are what psychologists call actively
open minded thinkers, people who didn't cling too tightly to
(22:42):
a single approach, who were comfortable abandoning an old view
in the light of fresh evidence or new arguments, and
who embraced disagreements with others as an opportunity to learn
the secret of super forecasting. It's a willingness to change
your mind. Philip Tetlock's work on super forecasting has rightly
(23:13):
attracted a huge amount of attention, But I think there's
a message in that work that's often overlooked. A willingness
to change your mind doesn't just help you make better forecasts,
it helps you cope with failed predictions too. Let's return
to John Maynard Keynes and Irving Fisher. Both of them, remember,
(23:35):
had persuaded themselves that their expertise in economics should lead
to investment success. Both of them were wrong. The stock
market crash of nineteen twenty nine caught each of them
by surprise. Both lost a lot of money. Yet here's
a curious fact. Despite his failure, Canes dyed a millionaire
(23:58):
and perhaps the most celebrated economist in the world. Fisher
made basically the same mistake, yet it ruined both his
finances and his reputation. Why the difference in their fortunes.
In a way, the answer is ridiculously simple. Caines changed
his mind and changed his investment strategy. Fisher changed neither,
(24:25):
But that only raises a deeper question. Why did Caines
change while Fisher didn't. Caines had lost one fortune in
nineteen twenty and survived the experience by nineteen twenty nine.
Before the crash, he was again pondering his shortcomings. His
(24:46):
investment strategy, based on the assumption that he could predict
the ups and downs of the business cycle, wasn't working out.
He started thinking about how to change his approach. Caines
lost more than eighty percent of his net worth in
nineteen twenty nine, but even afterwards he was still rich.
In short, he had plenty of evidence that had made
(25:07):
a mistake. He had experience of making mistakes in the
past and bouncing back, and he was still comfortably off.
Why not change. By the early nineteen thirties, Caines had
abandoned business cycle forecasting entirely. The greatest economist in the
world had decided he just couldn't do it well enough
to make money.
Speaker 7 (25:28):
As time goes on, I get more and more convinced
that the right method in investment is to put fairly
large sums into enterprises which one thinks one knows something
about and in the management of which one thoroughly believes.
Speaker 1 (25:42):
Forget what the economy is doing. Just find great companies
and invest for the long term. And if that approach
sounds familiar, it's most famously associated with Warren Buffett, the
world's richest investor, that a man who loves to quote
John Maynard Kynes. Kaines is rightly viewed today as a
successful investor at King's College. He recovered from the poor
(26:06):
performance of the early years. He secured high returns with
modest risks, outperforming the stock market as a whole many
times over. It's an impressive reward for being able to
change your mind. Irving Fisher was in a very different situation.
(26:28):
Irving Fisher's business page had graced newspapers across the country.
When things turned sour, Fisher was a scapegoat in front
of the entire United States. The New York Times reported
that the bubble had been blamed on.
Speaker 6 (26:42):
US Treasury Secretary Mellon, former President Coolidge, and Professor Irving
Fisher of Yale.
Speaker 1 (26:49):
And Professor Irving Fisher of Yale was in deep financial trouble.
The fact that his investments were made using leverage meant
that both gains and losses were magnified. What had seemed
like brilliance before the crash was catastrophic afterwards. Fisher was
staring in the face of bankrupt see the loss of
(27:10):
his house, his businesses, everything. For example, one of Fisher's
major investments was in the stationery company Remington Rand. It
was fifty eight dollars a share before the crash, dropping
to twenty eight dollars within a few months. At that point,
Fisher borrowed more money to invest, but the share price
kept falling all the way to one dollar. You could
(27:34):
imagine his desperation, But surely, being in such a tight
spot would have made Fisher more likely to adapt his strategy.
Not necessarily.
Speaker 6 (27:50):
I've received another message. Everyone get your overcoats and stand by. Okay, okay, guys, okay,
everyone sit quietly in the living room. We shall act
as if this were just an ordinary gathering of friends.
Speaker 1 (28:06):
Remember Dorothy Martin and her Ua Foe cult. They've persuaded
themselves that the world is about to be flooded and
that they will be saved at midnight by aliens delivering
them safely to planet Clarion. And remember too, that the
psychologist Leon Festinger has infiltrated the cult. His researchers were
there that night to observe what happened. Festinger had a
(28:30):
striking prediction that when the aliens didn't appear, many cultists
wouldn't be discouraged by the clear failure of missus Martin's
prophecy or feel angry and betrayed. Instead, they would redouble
their efforts to believe.
Speaker 6 (28:48):
Another reporter, no doubt. Just hang up. Our preparations cannot
be interrupted. We'll call them later if we have anything
for them.
Speaker 2 (28:57):
As the clock has midnight.
Speaker 1 (28:59):
That's wrong with that.
Speaker 4 (29:01):
Take a couple of minutes.
Speaker 7 (29:02):
That clock is love. Look at the other clock. I
said it myself this afternoon, and it's not midnight yet.
Speaker 6 (29:10):
One minute to midnight, and not a.
Speaker 2 (29:12):
Plan has gonistry.
Speaker 1 (29:16):
At midnight, the aliens did not appear. Nobody said a word.
One of the more casual cult members, who had expressed
skepticism before, picked up his coat and hat and walked out,
no comment.
Speaker 7 (29:35):
We have nothing to tell you.
Speaker 1 (29:37):
People tried to make sense of what was happening, or
rather not happening. The theories grew ever wilder. People were confused, exhausted.
Leon Festinger's observers tried to ask why the saucer hadn't come.
The group didn't want to talk about it, and then
at four o'clock in the morning, Dorothy Martin put her
(30:01):
face in her hands and began to weep. One of
Festinger's researchers stepped outside for some air and discussed the
situation with a leading cult member.
Speaker 3 (30:13):
I've had a long way to go. I've given up
just about everything. I've cut every tie, I burned every bridge.
I've turned my back on the world. I can't afford
to doubt. I have to believe.
Speaker 1 (30:27):
They went back inside. But at four forty five am,
Dorothy Martin, with hand shaking, picked up a pencil and
began to write. It was, she said, a new message.
Because of the faith shown by that small group of people,
(30:48):
the earth had been spared destruction. A higher power would
save not only the small cult but the entire human race.
At this the cultists acquired new fervor, going out to
greet the dawn and tell people the good news. They
suddenly became evangelists, issuing stufatements to the press rather than
(31:10):
batting them away.
Speaker 5 (31:12):
Dorothy, is this the first time you've called the newspaper yourself?
Speaker 6 (31:16):
Oh? Yes, this is the first time I've ever called them.
I've never had anything to tell them before, but now
I feel it's urgent.
Speaker 3 (31:26):
We should call the Associated Press and the Oneida Press.
This thing is pretty important. It's a very big thing,
bigger than just one newspaper.
Speaker 2 (31:35):
I don't think the creator would want this to be
an exclusive story, you know, definitely not.
Speaker 6 (31:40):
Oh no, right, correct, It's got to be for everybody.
Speaker 7 (31:43):
It's for everybody who wret.
Speaker 1 (31:45):
Yes, Festinger had been right. His view that the cultists
would redouble their efforts to believe in the face of
failure was based on a theory he called cognitive dissonance.
Cognitive dissonance predicts that people will start to squirm when
they hold contradictory thoughts, such as it's worth quitting my
(32:05):
job in order to be collected by aliens, and the
aliens did not show up. People often deny the obvious
in order to reduce the discomfort, and the more suffering
people have put themselves through on behalf of a belief,
the more likely they are to cling onto it. Otherwise,
all that suffering would seem ridiculous, would it not. Festinger's
(32:33):
theory applies perfectly to poor Irving Fisher in the nineteen thirties.
He believed himself to be a man of logic and reason,
and yet he was deeply in debt, the most famous
financial basket case in the country. In fact, if people
today know just one thing about Irving Fisher, it's this.
(32:57):
Two weeks before the Wall Street crash began, he was
quoted by The New York Times.
Speaker 5 (33:03):
Starks have reached what looks like a permanently high plateau.
Speaker 1 (33:08):
How do you away from that? Fisher went deeper and
deeper in debt to the taxman and to his brokers
towards the end of his life. He was a marginalized figure,
a widower, an easy target for scam artists and their
get rich quick schemes because he was always on the
(33:29):
lookout for a way to revive his fortune. He never did.
Although Caines had much in common with Fisher, he was
a different kind of character. Recall Kine's comment to his father, this.
Speaker 7 (33:44):
High stakes gambling amuses me.
Speaker 1 (33:46):
The Monte Carlo gambler knew all along that while investing
was a fascinating game, it was a game, nonetheless, and
one shouldn't take an unlucky throw of the dice too
much to heart. When his investments flopped, he tried something else.
Fisher and Canes died within a few months of each other,
(34:09):
not long after the end of the Second World War.
Fisher had become irrelevant. Caines was the most influential economist
on the planet, fresh from shaping the World Bank, the IMF,
and the entire global financial system. Looking back, Cain's reflected.
Speaker 7 (34:28):
My only regret is that I have not drunk more
champagne in my life.
Speaker 1 (34:33):
But he's remembered far more for words that he probably
never said. Nevertheless, he lived by them. When my information
changes I alter my conclusions. What do you do, sir?
If only he'd taught that lesson to Irving Fisher. You've
(34:59):
been listening to Cautionary Tales If you'd like to find
out more about the ideas in this episode, including links
to our sources, The show notes are on my website,
Tim Harford dot com. Cautionary Tales is written and presented
by me Tim Harford. Our producers are Ryan Dilly and
Marilyn Rust. The sound designer and mixer was Pascal Wise,
(35:21):
who also composed the amazing music. Starring in this season
are Alan Cumming, Archie Panjabi, Toby Stephens and Russell Tovey,
alongside Enzochilente, Ed Gochen, Melody Gutteridge, Massaamnroe and rufus Wright.
And introducing Malcolm Gladwell. Thanks to the team at Pushkin Industries,
(35:45):
Julia Barton, Heather Faine, Mea LaBelle, Carl Migliori, Jacob Weisberg
and of course the mighty Malcolm Gladwell. And thanks to
my colleagues at the Financial Times
Host
Tim Harford
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