On Trees and Forests

I was kind of surprised when former Fed chair Alan Greenspan admitted to a Congressional committee that he was “in a state of shocked disbelief” over the current financial crisis. I know next to nothing about economics or the goings on around Wall Street, but I’ve felt for at least the past couple of years that something like this was coming.

Does that make me smarter than all the experts who claimed that everything was hunky dory over the past few years? Hardly. But it might mean that, unburdened by any expertise about lots of financial minutia, I was free to get a clearer sense of the big picture.

I didn’t know a lot of the fine points, but it seemed clear to me that much of what had been going on in the economy - all the spending, borrowing and general high living - was not sustainable. Possibly channeling Paul Krugman, I felt we’d been living lately in a “Wile E. Coyote economy”: we’d gone off a cliff and were suspended in mid-air, awaiting the moment of awareness that would send us plummeting down. From this perspective, it wasn’t a question of if things were going to crash, but when.

So why were the experts like Alan Greenspan so shocked by what happened?

At least a part of the problem might be that experts all to often fall into the habit of breaking complex systems down into smaller and smaller pieces, and then just focusing on some of those pieces. Some people may focus on the housing market, for example, while others may focus on how financial institutions evaluate their risk. But apparently few experts were looking at the financial system as a whole, including all the ways facets like the housing market and institutions’ risk management might relate. (This is an issue I touched on here.)

In cases like this, non-experts - not being focused on one particular facet or another - might be able to sense the big picture better than the experts. As the saying goes, the experts can’t see the forest for the trees. As with the wave/particle duality in physics, it sometimes requires a change in perspective for us to see two distinct but equally true facets of something - whether it is an electron or an economy.

A great example of experts being blinded by their expertise is offered in the movie “My Dinner With Andre,” when Andre Gregory talks about his experience in a hospital:

“You know, we'd gone to the hospital to see my mother, and I went in to see her. And I saw this woman who looked as bad as any survivor of Auschwitz or Dachau. And I was out in the hall, sort of comforting my father, when a doctor who is a specialist in a problem that she had with her arm, went into her room and came out just beaming. And he said: 'Boy! Don't we have a lot of reason to feel great! Isn't it wonderful how she's coming along!' Now, all he saw was the arm, that's all he saw.”

If experts want to avoid finding themselves “in a state of shocked disbelief” they are going to have to learn to view complex phenomena as a system, not as just an amalgam of a bunch of pieces. They will have to learn to see the forest as well as the trees.