Home > Uncategorized > Skeptical? I Doubt It.

Skeptical? I Doubt It.


I was reading yet another article (here) about the unmasking of the global warming theory conspiracy – I find it hard to get too much of this delicious story – and was struck by the author’s assertion that “the importance of healthy skepticism in the face of conventional thinking is, once again, validated.”

Sure, skepticism is important in some vague societal sense, but it also carries high costs. Social structures are naturally evolved to condemn those who stray from the herd. Indeed, we can certainly argue that “skepticism” from a herd animal is probably not “important” in any real sense, and in fact probably quite dangerous. I suppose the value of skepticism probably increases with the size of the societal unit. Being skeptical if it’s just you and your wife discussing your future together is probably not useful and may be hazardous to your health…better to be a herd animal in that circumstance. Trust me.

But once you’re beyond the immediate group, and are discussing beliefs and norms held by large groups, nations, or society as a whole, then skepticism has some value because it occasionally breaks the self-reinforcing symmetry of views that can turn a crowd into a mob. It is healthy to have widely-held views occasionally re-examined so that the less-useful ones can be rejected, but if there are no skeptics then there is no catalyst for such re-examination.

So, I buy the argument that skepticism is “important,” but that doesn’t explain skeptics. Are skeptics skeptical because they are altruistic and want to help society, enough that they are willing to bear society’s opprobrium? Is their love of others so great that they willingly crucify themselves for the collective’s greater gain?

Baloney!

Skeptics tend to be skeptics because it pays well. The old saying goes “if you go with the crowd, you get no further than the crowd,” and this is literally true especially in finance. The payoffs of counter-crowd bets tend to be systematically too large after adjusting for the probability of the outcome. This is why, for many years (I don’t know if this is still true, and anyway I don’t condone gambling), a bettor could systematically bet against the Dallas Cowboys – and, later, the San Francisco 49ers – and make money over time. The action was so far on the side of the ‘popular’ team that the book would pay you (in a risk-adjusted sense) to take action on the other side.

Now, there’s a difference between being a skeptic and being a contrary ass. A skeptic is someone who can coolly evaluate the payoff to the skepticism strategy and pursue it when it is worthwhile; a contrary ass is basically a misanthrope who doesn’t like seeing other people do well, make money, or be happy. Both of them managed to avoid the 1999 stock market bubble, the recent housing bubble, and the developing re-bubble in equities. But the skeptic bet against the Dallas Cowboys while the contrary ass also cheered against them. Jerk.

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