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Luck and Learning to Make the Most of It

I was too ignorant to be fearful, so I muddled into the next step! From Wichita via Pasadena to Harvard and Stockholm: about Fortuna’s role in the life of a Noble Prize Laureate.

Luck and Learning to Make the Most of It

I believe we are all shaped by external events over which we have no control. In that sense we are all the product of luck. But that does not mean that we are entirely determined by luck. Frank Sinatra used to sing: I Did It My Way. It was popular because people like to believe they are in control; surely a healthy belief, if confidence helps you to overcome adversity, but it is well to pause and count your blessings.

Some call it luck, others call it Providence, and that points to the mystery of the forces that shape us and that we shape—forces well beyond our comprehension.

My good luck was to be born in a free country. Four years later when my memories became conscious we were in an economic depression not equaled again until 2007-2009. It would be several more years before I realized that we were poor, and surrounded by equally poor. There were rich people who lived in other parts of town in nice looking houses. In school when you met them they were just like us. Many believed we were in bad times because of the capitalist profit system. But there was no sense of contempt toward people who were better off. We were not poor because there were rich people; it was the system.

I must have been four when I had another stroke of exceptional luck. I had been to Cole’s Grocery, and I had taken a piece of candy from a display basket and put it in my pocket. Later at home I was holding it and my mom asked me where I had gotten the candy. I said, “Mr. Cole gave it to me.” Mom knew there was no way in this world that Merle Cole would have given me anything. So, she said she did not think that was true, and would I tell her where I got it. I said, “I took it out of a basket at Cole’s.” Whereupon my mom said since it was not mine but Mr. Cole’s, she would accompany me back to the store to return it. My mother was a socialist, but you didn’t take things from others that didn’t belong to you. I remember this like it was yesterday, but I had no sense of dire wrong-doing. Guilt comes not from an error corrected.

Note that this narrative might have happened differently. I might have eaten the evidence before it was discovered.  My mother might have been uprightly moral but allowed this case to not count. Or I might have forgotten the incident and been left untouched by it.

So, I am not high on the idea that we are all self-made men or women, and that we need feel only self-pride for accomplishment.

However, I do believe that a lot of failure is born of not grasping opportunities that come your way, and by failing to search for opportunity in unusual places.

I was also lucky in that my father had a small built-in cabinet for books that included the Harvard Classics. I developed this naïve childhood belief that the cabinet was a great store of knowledge. Scaled up, libraries with thousands of books held all that could be known.

Although my father and mother had only eighth grade educations, they and I expected me to attend college. With no one in the family having any experience, how do I choose a college? I went to the City Library and found a book on how to choose a college. I was lucky again. Early in the book, it was reported that the best college was the California Institute of Technology. I had read enough: I would go to Caltech! Since I was not a stellar student with good grades in high school, and had not studied nearly enough math, physics and chemistry this was a singularly wild presumption on my part.

I was seventeen, but I had been working for 5 years—in a drug store, then a restaurant, and finally at Boeing Wichita—and saved enough money to go to nearby Friends University. At Friends I studied physics, calculus, chemistry and astronomy for one year, sat for the Caltech entrance exam, passed and was accepted.

Notice the prominent role of luck, which created opportunity. Fortunately, no knowledgeable person was around to tell me that my Caltech goal was pretentious. I was too ignorant to be fearful, so I muddled into the next step!

At Caltech I was outshone by brilliant classmates, the like of which I had never seen. Consequently, I had to offset this handicap by studying long hours, including weekends, to solve the deluge of problems. I was a good-enough but not outstanding student. It had been exactly the right decision. The environment was inspiring. I learned chemistry from Linus Pauling, physics from Robert Leighton and J. Robert Oppenheimer, mathematics from Bohnenblust (we called him boney out of affection); Bertrand Russel gave a visiting lecture in philosophy of knowledge.

As a senior I had a course in economics that particularly intrigued me. Again to the library, where I discovered Samuelson’s Foundations. Economics is easy; it’s just physics! There, I also found von Mises which was more difficult. I graduated. Poverty required me to enroll at the University of Kansas to study economics.

Necessity turned out to uncover another stroke of luck. At KU I was mentored by Richard Howey. Howey was an economic thought scholar—a declining specialty in economics, but he did it thoroughly by learning all the auxiliary tools required to excel: mathematics, German, French and Italian. Howey was intrigued by the marginal utility revolution in economic thinking, and pursued an understanding of its origins in contributions across European scholars. That intellectual model generalized. Economics is loaded with questions that are unanswered and not even answerable within its traditionally explored boundaries. Once you learn the basics in economics, you acquire whatever auxiliary knowledge is necessary to answer the open questions that are not being answered. If that requires explorations outside of what economists consider to be its boundaries, then you follow those paths into new learning.

Open questions drove me to experiments, but every answer raised new questions.

If a market can be conceptualized in terms of an equilibrium, how might the participants actually find that equilibrium? What and how much information did they need? Given the rules of a trading process in markets without re-trading—all consumer non-durables—we discovered that people could find the equilibrium in repeat interaction with only private information. A simple and remarkable answer. But in markets for re-tradable durables—securities and houses—complete information wasn’t even sufficient, so powerful was the tension between utility use value and re-sale value. Bubbles easily emerged.

What did it mean to be self-interested across the range of experience in social and economic transactions? Experiments found that in trust games people cooperated far in excess of the predictions of models of self-interested game-theoretic utility maximization. The answer could not be “bounded rationality” because people were making more money than if they played like game theorists! So whose rationality is bounded? Behavioral economists said it was simple: The answer is “social” preferences: Other-regarding decisions imply that your utility depends not only on what you receive but also on what the other person receives. Can we seriously claim that our science is rescued by simply refitting people with a just-so utility function?

When theory fails all its pieces are on the table; utility is only a piece. Unexpectedly, a better framework of analysis had been offered by Adam Smith (1759):  “Actions of a beneficent tendency, which proceed from proper motives, seem alone to require a reward; because such alone are the approved objects of gratitude…” (The Theory of Moral Sentiments, p 112).  Cooperation is about fellow-feeling in relational processes. Everyone’s utility is self-interested, but people cannot look their neighbors in the face and aver that they always act on that principle. Hence, we follow rules, like my mom’s, in which our knowledge that all are self-interested enables us to know who is hurt, and who benefits from our actions, take that into account, and live harmoniously with our neighbors.

In retrospect, I came to realize that far from being a forward planner, I always managed to know what to do next. I could see what fortune brings then take the natural next step.

I think it is Providence.

Englische Originalversion des Artikels «Eine Kurve nach der andern». Zur deutschen Übersetzung gelangen Sie hier.

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