215. Managing Uncertainty feat. John Kay

The behavior of business practitioners is often driven by the defunct theories of economists. But to some extent all theories and models come with limitations and both the financial crisis of 2008 and the recent pandemic have made those limitations hard to ignore.

Sir John Kay is one of Britain’s leading economists. He was the first dean of Oxford’s Said Business School and has held chairs at the London School of Economics, the University of Oxford, and London Business School. 

His interests focus on the relationship between economics and business. His career has spanned the academy and think tanks, company directorships, consultancies, investment companies and media. For twenty years, he wrote a regular column for the Financial Times and has authored an astonishing number of books. He was awarded a knighthood in the Queen’s 2021 Birthday Honours List for services to economics, business and finance.

Greg and John discuss how to navigate a complex environment, which we can only imperfectly understand, why we should embrace uncertainty and how to create strategies that are resilient to unpredictable events.

Episode Quotes:

On why we're not going to get predictability in economics

10:02: The world we're dealing with, in economics, business, and finance is not stationary. There are not underlying models in the way we talk about the motion of the planets, which has remained unchanged for several centuries. And not only has it remained unchanged for centuries, but actually we know what these equations are, and they're not affected by what we do or think about them; Venus does not care what we think about its equations of motion. But the people who work in organizations and financial markets do care what we think about. And that world is affected by our interaction with it.

Why you shouldn’t take models too seriously

05:01: To understand economics, to understand social science, we absolutely need models. The mistake is to think that the models we're building are true descriptions of the world. And they're not. I think models and economics are best regarded as parables; they're stories.

An observation on how people use models

14:07: You can use models to say, "This is what might happen to an unchecked pandemic." You can use a model to say, "This is an indication of the effect we might have if we introduced lockdown measures or vaccinations of the like." You can use models to illustrate scenarios and tell stories. If you think you can use models to predict, then I think you are attempting a kind of pseudoscientific position that is simply not available.

Show Links:

Recommended Resources:

• George E. P. Box
• John Maynard Keynes
• Blaise Pascal
• “The Tyranny of Merit: What's Become of the Common Good?” by Michael Sandel

Guest Profile:

• Professional Profile at London School of Economics
• Faculty Profile at St. John’s College, Oxford University
• Professional Profile on Financial Times
• John Kay’s Website
• John Kay on LinkedIn
• John Kay on Twitter
• John Kay on Facebook
• John Kay on Talks at Google

His Work:

• Greed Is Dead: Politics After Individualism
• Radical Uncertainty: Decision-Making Beyond the Numbers
• The Long and the Short of It: A guide to finance and investment for normally intelligent people who aren’t in the industry
• Other People's Money: The Real Business of Finance
• Obliquity: Why Our Goals Are Best Achieved Indirectly
• The Truth About Markets
• The British tax system

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