Victor Grauer writes:
The film, “The Big Short,” and the book, “No One Would Listen,” offer instructive object lessons on the dangers of blindly accepting a consensus, no matter how convincing it might sound.
The following is lightly edited version of a comment originally submitted to the RealClimate blog, but predictably it wound up in the “Bore Hole”:
I recently had the opportunity to view, for the second time, the very amusing and instructive film, “The Big Short.” And, by coincidence, I just completed the fascinating book, “No One Would Listen,” by would-be whistle blower Harry Markopolos. And I could not help but notice a theme common to both works: the potential dangers involved in uncritically accepting a widely held consensus view.
The protagonists of “The Big Short” see very clearly that the US housing market is unstable, and that the huge financial industry produced by the questionable packaging of mortgage-backed securities is about to collapse, taking the world economy with it. Seeing an opportunity to profit from their insights, they decide to short the market for such securities, but when they explain their strategy to the bankers, they are met with derision and laughter. After all, the consensus of literally everyone in the financial world is that the housing market is and always will be solid. And after all, the financial organizations dealing in such securities are among the most successful and highly regarded in the world. A powerful consensus indeed!
Harry Markopolos is a financial expert who, many years ago, figured out, on the basis of a critical analysis of the data, that Bernie Madoff was a fraud. Yet no matter how many times he tried (as I recall it was 8 times in all, dating back to 1999), he was never able to convince the Securities and Exchange Commission to properly investigate. Nor was he able to convince almost anyone investing with Madoff to look more closely into his operation. Why?
Once again, the consensus of just about everyone in the financial world was that Madoff was honest, forthright, solid, reliable and completely trustworthy. After all, he had produced impressive returns year after year for a very long time, he’d been “investigated” by the “experts” at the SEC (in a half-hearted effort that turned out to be a sham), and passed with flying colors. Markopolos was routinely ignored, mocked, and dismissed as some sort of crackpot. After all, he was bucking an overwhelming consensus in the world of finance that Madoff could do no wrong. Ironically it was not Markopolos, who had him figured out from the start, but Madoff himself, who finally blew the whistle. There was literally too much at stake for anyone else to do so.
The financial crisis anticipated by the protagonists of The Big Short shook the entire world and is still having dire repercussions everywhere. And if Bernie Madoff’s scam had been allowed to progress for another few years, his collapse might have had equally disastrous repercussions.
I’ll leave it to readers to draw their own conclusions regarding any possible parallels with the consensus on climate change.
Glory, glory, it’s nice to see consensus broken. Prof Peter Wadhams has just announced on UK BBC Radio 4’s Today programme that we should not rely on models to predict Arctic sea ice. He said because they don’t predict the end of Summer Arctic Sea Ice until the end of this century it means that we will miss the opportunity to act now to reduce CO2 in the atmosphere through complacency. Keep talking Prof, there are plenty more models that shouldn’t be relied on as well.
In 1916, the consensus was that the universe could not be expanding.
One man, Hubble proved them wrong.
97% of scientists accepted Hubble was correct.
Today’s scientists do not have the humility of their predecessors.
Another analogy is low fat diets. All the scientists agreed that a low fat high carb diet was the best way to control your weight. Since then, America has become obese.
Are we all agreed that consensus is no guarantee of truth?
I think there’s a consensus on that point.
Saturated fat comes to mind. Flawed consensus where “better safe than sorry” produced disasterous results
The consensus at the end of the19th C, led by Lord Kelvin, was that ‘all there was to know in Physics had been fully discovered’; then in 1900 along came the reluctant revolutionary Max Planck.
Boltzmann’s statistical approach to thermodynamics based on atomic theory was ridiculed in the 19th C by, among others, Max Planck who did not believe in atoms. Planck was a classical thermodynamicist and regarded his constant h as just a mathematical trick to fit the curves based on measurement.He was reluctant to take any credit for quantum mechanics.
Been there, done that.
Bucking the consensus is never fun (and it is hazardous to your health and career).
Re: The Big Short – my take was that the movie, while entertaining, was a rather glib and superficial gloss based on what was an absolutely fantastic book. The book lays out the evidence that makes it clear that in fact, a whole lot of people in the financial world knew that the 2008 crackup was coming – they just weren’t sure of the exact timing, so they gamed it out thinking that it would be more profitable to wait til the last minute to dump all their holding.
A few of them won that bet, most of them lost, and the ordinary people, the mortgage holders and deposit holders and taxpayers, were of course the biggest losers of all.
Which they were always intended to be.
Scientific consensus is never final. That is what science means (among other things). But usually, if you are not an expert in the field, that is the way to bet.
The scientific consensus is that smoking is bad for your health. That might be wrong, like in the movie “Sleeper” where Woody Allen is offered a cigarette as “the healthiest thing for you.” But the consensus is most likely correct, and until it changes I will not take up smoking.
Well said.
As many on this site have said: ‘Good scientists are skeptics’. I would add that all skeptics are not good scientists..or even scientists. Sometimes they are uneducated contrarians that think they’ve discovered an incantation that cures cancer, that there’s no greenhouse effect, or that local atmospheric temperature depends on air pressure rather than convection, conduction, and thermal radiation conversion to kinetic energy. They share a commn characteristic: they know they’re right, and that PhD Scientists are conspiring to deceive them.
As many on this site have said: ‘Good scientists are skeptics’. I would add that all skeptics are not good scientists..or even scientists. Sometimes they are uneducated contrarians that think they’ve discovered an incantation that cures cancer, that there’s no greenhouse effect, or that local atmospheric temperature depends on air pressure rather than convection, conduction, and thermal radiation conversion to kinetic energy. They share a commn characteristic: they know theyu’re right, and that PhD Scientists are conspiring to deceive them.
I am a big fan of “The Big Short” but have not read the book about Madoff. The point I wish to make is what are the two things linking both? The Securities and Exchange Commission. It is a complete joke.