Template:M intro design Metis
“Der Tod eines Menschen: das ist eine Katastrophe. Hunderttausend Tote: das ist eine Statistik!”[1]
- —Kurt Tucholsky, 1925
If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.
- John Paul Getty?
An observation from James C. Scott’s Seeing Like A State, picked up in the early exchanges of Allen Farrington’s Bitcoin Is Venice is that of the difference of “metis” — knowhow, experience, wisdom, accumulated heurism — what we call subject matter expertise, and which stands in distinction to — in forlorn defiance of — high modernism which solves everything at scale, by abstract model referencing the homogenised general and not the intricate particular.
The difference between the top-down averagarian view and the subject matter expert’s view. The administrator knows that the portfolio risk is, say 5 percent and succeeds it she can “manage the portfolio” to suffer a risk of less than 5 percent — which she may do by changing the portfolio to remove what she sees as the high-risk instruments — whereas an individual risk manager manages a single instrument with a given risk of 5 percent and succeeds if she can avoid that risk altogether. For the individual risk manager, there is no 5 percent loss. The loss is either nil or 100%.
A portfolio with 100 managers each managing a single instrument for which they are fully responsible throughout its life will lead to different decisions throughout the life of each instrument. Including the decision to invest in the first place.
Here is the equivalent of the averagarianist’s category error. We derive a mathematical property from an observed set of events — this is simple computation — that of a group of 100 mortgages, five did default — and make two invalid extrapolations. Firstly, that in any group of 100 mortgages, therefore, five will default, and secondly, each mortgage in that portfolio has a probability of defaulting of 5 percent.
Both conclusion is obviously barmy unless you have no better information on which to judge individual loans.
- ↑ “The death of one man: that is a catastrophe. A hundred thousand deaths: that is a statistic!”