0:15

Pushkin. As

0:23

the night draws in and the fire

0:25

blazes on the hearth. We

0:27

warn the children by telling them stories.

0:31

Cinderella teaches them that if you want to leave

0:33

the party early, leave your phone number

0:36

rather than a piece of design of footwear.

0:39

But my stories are

0:41

for the education of the grown ups, and

0:44

my stories are all true. I'm

0:47

Tim Harford. Gather close

0:50

and listen to my cautionary tales.

1:12

Late one evening on the twentieth

1:14

of December nineteen fifty four, a

1:17

small group of people sat together

1:19

in a living room in Oak Park, a

1:22

suburb of Chicago, waiting

1:24

for the end of the world. They

1:27

were led by a woman named Dorothy

1:29

Martin, who was a conduit for messages

1:32

from aliens or God, or

1:35

both. The messages

1:37

were alarming. At midnight,

1:40

the aliens would land a flying

1:42

saucer in the backyard and convey

1:45

the true believers to the safety of a

1:47

planet named Clarion. Then

1:51

at dawn, a cataclysmic

1:53

flood would destroy much

1:55

of the world. Now,

1:58

at five minutes to midnight, the

2:01

believers who were waiting some were

2:03

disheveled, since the aliens had demanded

2:05

they remove all metal from their clothing.

2:08

Braclip buttons, even trouser

2:10

zips had been hastily slashed away

2:12

by fumbling hands wielding scissors

2:15

or razors. Some of the

2:17

group were there out of mere curiosity.

2:20

Others had sacrificed almost

2:22

everything for this moment. They'd

2:24

quit their jobs, given away their possessions,

2:27

and said farewell to their families. But

2:30

what distinguishes this particular

2:32

apocalyptic cult from all

2:34

the others is that a small team

2:36

of social scientists, led

2:39

by the world renowned psychologist Leon

2:41

Festinger, had managed to

2:43

infiltrate it. They

2:46

were there to witness what happened

2:49

at midnight, and

2:51

in particular, how the group reacted

2:54

to the appearance or possibly

2:57

the non appearance, of

2:59

the aliens. Gather

3:03

round, and I'll tell you another

3:05

cautionary tale.

3:32

I'll tell you all about what happened with Leon

3:35

Festinger, Dorothy Martin and the

3:37

aliens in due course, but

3:39

for a moment, let's leave them there

3:41

in Chicago anxiously waiting

3:44

for the end of days, because

3:46

I have another story to tell you. And

3:48

it's not a story about crazy cult

3:51

members, but about two economists,

3:54

indeed, two of the most celebrated

3:57

economists who ever lived. And

4:00

what do these economists have to do with a

4:02

UFO cultin nineteen fifties

4:04

Chicago. It's very simple.

4:07

Just like Dorothy Martin, they tried

4:09

to see into the future, and trying

4:11

to see into the future it's a

4:14

dangerous business. One

4:16

of the economists I want to tell you about is the great

4:18

British polymath John Maynard Keynes.

4:21

You may have heard of him. He's a colossal figure

4:24

in economics, overturning the ideas

4:26

that had gone before him and then reshaping

4:29

the postwar economic system.

4:31

Many economists still call themselves

4:34

Keynesians, like him or hate

4:36

him. In economics, you can't get

4:38

much bigger than John Maynard Keynes,

4:42

except that in his day

4:44

you could. When Caynes

4:47

first strode the world stage,

4:49

he did so in the shadow of another

4:52

man. In nineteen twenty four,

4:54

The Wall Street Journal tried to describe

4:56

John Maynard Caynes, this up and coming

4:59

economist. They reached for a comparison

5:01

that everyone in America would have known.

5:04

Canes said the journal was England's

5:08

Irving Fisher, and

5:10

Irving Fisher was the most famous

5:12

economist on the planet. But

5:15

Irving Fisher wasn't just more famous

5:18

than Kenes. He was brilliant

5:20

as one Nobel Prize winner put

5:22

it, Fiesel was anywhere fully

5:24

decade to dooge. In additions

5:27

ahead of his time, some would

5:29

say he was the greatest economist who

5:31

ever lived. But

5:33

if you're thinking I don't hear much about

5:35

Irving Fisher these days, you're

5:38

right. He's not the household

5:40

name he was a hundred years ago. If

5:43

you're wondering why his reputation

5:45

faded while Canes is lived on,

5:48

that is what our cautionary tale

5:51

is all about. Irving

5:55

Fisher and John Maynard Keynes were

5:58

very different men in some important ways,

6:00

but they also had a great deal in common. Both

6:03

were stars at their universities, Canes

6:05

at Cambridge in England, Fisher at

6:07

Yale. They were both physically impressive.

6:10

Canes was thin and very tall, with

6:13

piercing eyes. Fisher had the

6:15

broad chest of a competitive rower. They

6:17

were both skilled writers charismatic

6:20

speakers too. After witnessing

6:22

Canes giving a speech, the Canadian

6:24

diplomat Douglas Lapan was moved

6:27

to write, I am spellbound.

6:29

This is the most beautiful creature I have ever

6:32

listened to. Does he belong to

6:34

our species? Or is he from

6:36

some other order? And

6:38

Fisher and Canes also both

6:41

active investors. They weren't

6:43

just Ivory Tower economists,

6:45

but men who believed that their mastery

6:47

of economics would enable them to make

6:50

profitable investments. That is

6:52

where their interest in forecasting came

6:54

in. An academic

6:56

economist might be content to describe

6:59

and explain the economy's past, but

7:01

to make money, Fisher and Canes would

7:04

have to catch a glimpse of the economy's

7:06

future. Let's meet the young

7:09

being Fisher, how much

7:11

there is I want to do? I

7:13

always feel that I haven't time to accomplish

7:15

what I wish. I want to read much.

7:18

I want to write a great deal. I

7:21

want to make money. He's

7:24

writing from Yale to an old school

7:26

friend. Money was important

7:28

to Fisher. His father had

7:30

died of tuberculosis the

7:33

very week that Irving had arrived at

7:35

Yale. The young man needed to

7:37

scramble for funds Throughout his studies.

7:40

He understood what it was to

7:42

struggle financially while surrounded

7:44

by wealth. At the age of twenty

7:46

six, however, Fisher found himself

7:49

with a small fortune at his disposal.

7:51

He had married a childhood playmate,

7:54

Margaret Hazard, who was the daughter of

7:56

a wealthy industrialist Irving

7:58

and Margaret's wedding was sumptuous enough

8:00

to be covered by the New York Times. With

8:03

two thousand invited guests,

8:05

three ministers, an extravagant

8:07

lunch, and a wedding care weighing

8:10

sixty pounds, they commenced

8:12

a fourteen month European

8:14

honeymoon and returned to a brand

8:16

new mansion in New Haven. It

8:19

had been built in their absence as

8:21

a wedding present from Margaret's father, had

8:24

was furnished with a library, a music

8:26

room, and spacious offices. If

8:29

marrying your childhood's sweetheart

8:31

sounds a little too wholesome, I'm

8:34

just getting started. There

8:37

are three things you need to know about

8:39

Irving Fisher. The first is

8:41

that he was a health fanatic. He abstained

8:44

from alcohol, tobacco, meat,

8:46

tea, coffee, and chocolate. One

8:49

dinner guest enjoyed his hospitality

8:51

while noting his quirkiness. Well,

8:53

I ate right through my succession

8:55

of delicious courses. He

8:58

dined on a vegetable and a

9:00

raw egg. He

9:03

founded the Life Extension Institute

9:06

and persuaded William Taft, who had just

9:08

stepped down as president, to be its

9:10

chairman in nineteen fifteen,

9:12

when he was nearly fifty years old, he

9:14

published a book titled How

9:17

to Live. How to Live

9:19

Now, that's some real ambition. It

9:21

was a huge bestseller, the free economics

9:24

of its day, and from a

9:26

modern perspective, it's hilarious.

9:28

I advocate a sunbath, common

9:31

sense must dictate its intensity and duration.

9:34

It is important to practice thorough

9:36

mastication, chewing to the

9:38

point of natural involuntary swallowing.

9:41

He even adds a discussion of the correct

9:43

angle between the feet while walking,

9:46

about seven or eight degrees of out

9:48

tying in each foot. And there's

9:50

a short section on eugenics, which

9:53

really hasn't aged well. But

9:55

while it's easy to laugh, How to

9:58

Live is in many ways as far ahead

10:00

of its time as Fisher's economic analysis,

10:02

describing exercises preaching

10:05

mindfulness, and at a time when

10:07

the majority of doctors were smokers,

10:09

correctly warning that tobacco causes

10:12

cancer. The second

10:14

thing you need to know about Irving was that he believed

10:16

in the power of rational quantified

10:19

analysis. In the modern study

10:21

of scientific clothing, there is a new

10:23

unit, the cloe. This

10:26

is a technical unit for measuring the warming

10:28

power of clothing. There's also

10:31

the money that's the third thing

10:33

you need to know. Irving Fisher

10:35

was rich, and not just because of

10:38

his wife's inheritance. Making

10:40

money was a matter of pride for Fisher.

10:42

There were the book royalties from How to

10:44

Live. There were his inventions, most

10:47

notably a forerunner of the rolodex,

10:49

a way of organizing business cards. He

10:51

sold that invention to a stationary

10:53

company for six hundred and sixty

10:56

thousand dollars in cash, many

10:58

millions of dollars in today's terms. Fisher

11:01

turned his academic research into a major

11:03

business operation called the Index

11:05

Number Institute. It sold data,

11:08

forecasts and analysis as

11:10

a syndicated package to newspapers

11:12

across the United States. He

11:14

called it Irving Fisher's business

11:17

Page. With such a platform,

11:19

Fisher was able to evangelize about

11:21

his approach to investment, which broadly

11:24

speaking, was to bet on American growth

11:26

by buying shares in the new industrial

11:29

corporations using borrowed

11:31

money. Such borrowing is

11:33

called leverage since it magnifies

11:35

both profits and losses, but

11:38

during the nineteen twenties, stock market

11:40

investors had few losses to worry

11:42

about. Share prices were

11:45

soaring. Fisher

11:47

wrote to his old childhood friend

11:50

to inform him that his ambition had

11:52

been fulfilled. We are all making

11:55

a lot of money. In

11:57

the summer of nineteen twenty nine. Irving

12:00

Fisher was a best selling author, inventor,

12:03

data pioneer, friend of presidents,

12:05

entrepreneur, health campaigner, syndicated

12:08

columnist, and the greatest academic

12:10

economist of his generation, and

12:12

in that summer of nineteen twenty

12:15

nine, a millionaire many

12:17

times over, Irving Fisher was

12:19

able to boast to his son that

12:21

a renovation of the family mansion had

12:24

been paid for not by the hazard family

12:26

money, but by Irving Fisher

12:29

himself. That achievement

12:32

mattered to him. Fisher's own

12:34

father hadn't lived to see his seventeen

12:37

year old boy grow into one

12:39

of the most respected figures of

12:41

the age. As Irving and

12:43

his son watched a mansion reshaped

12:46

before them, he could perhaps

12:49

be forgiven his pride. John

13:03

Maynard Keynes was the ultimate

13:05

insider. As a schoolboy,

13:07

he was educated at Eton and College,

13:10

just like Britain's first Prime minister

13:12

and nineteen others. Since like

13:14

his father, he became a senior academic,

13:17

a fellow of King's College, the

13:19

most spectacular of all the

13:21

Cambridge colleges. His job

13:24

during the First World War was managing

13:26

both debt and currency on

13:28

behalf of the British Empire. He

13:31

had barely turned thirty. He knew

13:33

everyone. He whispered in the

13:35

ear of prime ministers. He had

13:37

the inside track on whatever was

13:40

going on in the British economy. Maynard

13:43

Bank of England. Here, I just wanted to let

13:45

you know that interest rates will be rising tomorrow.

13:48

There's a good chab. But

13:52

this child of the British establishment

13:54

was a very different person to his American

13:57

rival, Irving Fisher. He loved

13:59

fine wines and rich food. He gambled

14:01

at Monte Carlo. His sex life

14:04

was more like a nineteen seventies pop

14:06

star than a nineteen hundreds economist,

14:08

bisexual, polyamorous,

14:10

eventually settling down not with

14:12

his childhood sweetheart but with a

14:14

Russian ballerina. One of Keynes's

14:17

ex boyfriends was the best man at their

14:19

wedding, and

14:21

Canes was adventurous in other ways

14:23

too. In nineteen eighteen, for example,

14:26

as the First World War was raging

14:28

and the German army was camped outside

14:31

Paris, Canes caught wind of the

14:33

fact that in Paris, the Great

14:35

French Impressionist artist Edgar

14:38

de Gas was about to auction his

14:40

vast collection of pieces by

14:42

France's greatest nineteenth century

14:44

painters, and so Canes

14:46

embarked on an insane adventure.

14:49

First, he spoke to the Chancellor

14:51

of the Exchequer, the UK's senior

14:54

treasury minister, asking for a fund

14:56

for purchasing art twenty

14:58

thousand pounds. That's millions

15:01

in today's money. Maynard,

15:03

it's the first occasion that I've ever known

15:05

you in favor of any expenditure whatsoever.

15:09

The British Treasury was four years

15:11

into fighting the most devastating

15:13

war the planet had yet seen, but

15:16

Canes knew how to get his way. My

15:18

picture coup was a whirlwind affair, carried

15:20

out in a day and a half before anyone had

15:23

time to reflect on what they were doing.

15:25

I think the Chancellor was very much amused

15:27

at my wanting to buy pictures, and eventually

15:30

let me have my way as a sort of a joke,

15:33

some joke. Escorted

15:35

by destroyers and a silver

15:37

airship watching overhead,

15:40

Canes crossed the Channel to France

15:42

with the director of London's National

15:44

Gallery, who shaved off his mustache

15:47

so that nobody recognized him, and just

15:49

as Deagar's auction begins, the

15:52

German artillery starts up. Some

15:55

people panic and hurry out. Canes

15:57

pounces, buying twenty seven

16:00

pieces at rock bottom prices for

16:02

the National Gallery, and

16:04

he buys a few for himself, including

16:06

a Cesanne, which these days

16:09

would be regarded as a better buy than anything

16:11

the National Gallery director chose. It

16:13

costs Canes just three

16:16

hundred and seventy pounds. He

16:18

then flee back to the English Channel

16:21

and cross home with a convoy of hospital

16:23

ships. Exhausted after

16:26

his NonStop adventure, Canes

16:28

calls in on some friends. I've got a Czanne

16:30

in my suitcase. It was too heavy

16:32

for me to carry, so I've left it in the ditch

16:35

behind the gate. What Irving

16:37

Fisher would have made of it all, I do

16:39

not know yet. Like Fisher,

16:42

Canes was also pursuing an investment

16:44

career. It wasn't just in art.

16:46

He set up what some historians describe

16:49

as the first hedge fund to speculate

16:51

on currency movements. He raised money

16:53

from rich friends and from his own

16:55

father, to whom he made the not entirely

16:58

reassuring comment, when or lose

17:01

this high stakes. Gambling amuses

17:03

me. Initially, Canes made money

17:05

fast, but then a brief

17:07

spasm in the currency markets wiped

17:10

out his fund in nineteen twenty

17:13

awkward, but he went back to his investors,

17:15

including his own father, and asked

17:18

them to trust him with more of their money.

17:20

I am not in a position to risk any capital

17:23

myself, having quite

17:25

exhausted my resources. Remember

17:28

this is John Maynard Keynes, the

17:31

man who persuaded a wartime government

17:33

to speculate in a Parisian art auction.

17:36

The man a Canadian diplomat mistook

17:38

for an angel. I anticipate very

17:40

substantial profits with very good

17:42

probability if you are prepared to stand

17:45

the racket for a couple of months. Of

17:47

course, they gave him the money he wanted. Canes

17:50

was back in profit by nineteen twenty

17:52

two. So,

17:56

having made a small fortune, lost

17:58

it and made it again. Canes

18:00

turned to the vast investments of

18:02

his own college, King's

18:04

Cambridge. Canes persuaded

18:06

his fellow academics to let him adopt

18:09

a radical money making strategy. He

18:11

would forecast booms and recessions

18:13

and move in and out of different

18:15

economic sectors. Accordingly, such

18:18

an approach makes sense only if you

18:20

actually can forecast

18:22

recessions. But Canes

18:25

was the leading economist in the country and a man

18:27

who remember would get friendly phone

18:29

calls from the Bank of England. If

18:31

anyone could see into the future

18:34

of the British economy, it was John

18:36

Maynard Keynes. By

18:39

late nineteen twenty nine,

18:41

both Irving Fisher and John

18:43

Maynard Keynes were rich, famous,

18:47

respected, and standing

18:49

on the brink of a financial precipice.

18:52

The cataclysmic Wall Street

18:54

Crash followed by the Great Depression,

18:56

the worst peacetime economic calamity

18:59

to befall the Western world, and

19:01

the two greatest economists of the age,

19:04

Fisher and Canes. Both

19:07

of them failed to see it coming.

19:17

Experts don't have a stellar

19:19

reputation for forecasting. In

19:22

nineteen eighty seven, a young Canadian

19:24

born psychologist named Philip

19:26

Tetlock became curious about

19:28

the entire prognostication racket.

19:31

Tetlock had been interviewing Cold

19:33

War experts, and he soon found

19:36

himself frustrated by their wildly

19:38

different predictions, their refusal to

19:40

change their minds when they were wrong, and the

19:42

endless excuses for their forecasting

19:44

failures. Tetlock's response

19:47

was patient painstaking and

19:50

quietly brilliant. He began to

19:52

collect forecasts from almost

19:54

three hundred experts, eventually

19:56

accumulating twenty seven thousand,

19:59

five hundred predictions. He focused

20:01

on politics and geopolitics,

20:04

throwing in a few questions from areas

20:06

such as economics. Tetlock

20:08

sought clearly defined questions, enabling

20:11

him, with the benefit of hindsight, to pronounce

20:13

each forecast right or wrong.

20:16

Then Tetlock simply waited

20:19

while the results rolled in for

20:21

eighteen years. Tetlock

20:24

published his conclusions in two thousand and

20:26

five in a subtle and scholarly

20:29

book, Expert Political Judgment.

20:31

He found that his experts were terrible

20:34

forecasters, both in the simple sense

20:36

that what they predicted often didn't happen,

20:39

and in the deeper sense that the experts

20:41

had little idea of when they should

20:43

be confident and when they should admit that

20:45

they didn't have a clue. Expert

20:47

forecasts were barely more accurate

20:50

than chimpanzees throwing darts.

20:53

Most people hearing about Tetlock's

20:56

research simply conclude that

20:58

either the world is too complex to forecast,

21:01

or that experts are too stupid to

21:03

forecast it, or both. On

21:07

April Fool's Day twenty thirteen,

21:10

of all days, I received an email

21:12

from Philip Tetlock inviting

21:14

me to join what he described as a

21:17

major new research program.

21:20

It was funded by the US Intelligence

21:22

Services. This program continued

21:24

and expanded Tetlock's long running study

21:26

in the form of a forecasting tournament.

21:29

You would simply log onto a website, give

21:31

you a best judgment about matter as you may

21:33

be following anyway, and update that

21:36

judgment if and when you feel it should be. When

21:39

time passes and forecasts are judged,

21:41

you could compare your results with those of others.

21:44

More than twenty thousand people signed

21:46

up, some professionals and some

21:48

amateurs. Tetlock and his colleagues

21:51

ran experiments on this army of volunteers,

21:54

giving them different kinds of training or

21:56

assembling them into teams to see if that

21:58

helped. I didn't join in. I

22:00

told myself I was too busy. I suppose

22:03

I was chickening out too. But the fundamental

22:05

reason that I didn't participate was because

22:08

Tetlock's work had already persuaded

22:10

me that the forecasting task was

22:12

impossible. But it

22:14

wasn't. This vast

22:17

new tournament identified a select

22:19

group of people whose forecasts, while

22:21

by no means perfect, were vastly

22:24

better than the dart throwing chimp standard.

22:27

Tetlock, with an uncharacteristic

22:29

touch of hyperbole, called them

22:32

super forecasters. So

22:34

what makes a super forecaster? The

22:37

super forecasters are what psychologists

22:39

call actively open minded

22:42

thinkers, people who didn't

22:44

cling too tightly to a single approach,

22:46

who were comfortable abandoning an old view

22:49

in the light of fresh evidence or new arguments,

22:52

and who embraced disagreements

22:54

with others as an opportunity to learn

22:57

the secret of super forecasting. It's

22:59

a willingness to change your mind.

23:11

Philip Tetlock's work on super forecasting

23:14

has rightly attracted a huge amount

23:16

of attention. But I think there's

23:18

a message in that work that's often

23:20

overlooked. A willingness

23:22

to change your mind doesn't just help you make

23:25

better forecasts, it helps

23:27

you cope with failed predictions

23:29

too. Let's

23:31

return to John Maynard Keynes and

23:33

Irving Fisher. Both of them,

23:36

remember, had persuaded themselves

23:38

that their expertise in economics

23:40

should lead to investment success.

23:42

Both of them were wrong. The

23:45

stock market crash of nineteen twenty nine

23:47

caught each of them by surprise, both

23:49

lost a lot of money. Yet

23:52

here's a curious fact. Despite

23:55

his failure, Canes died

23:58

a millionaire and perhaps

24:00

the most celebrated economist in

24:02

the world. Fisher

24:04

made basically the same mistake, yet

24:07

it ruined both his finances and

24:09

his reputation. Why

24:12

the difference in their fortunes. In

24:14

a way, the answer is ridiculously

24:17

simple. Canes changed

24:19

his mind and changed

24:21

his investment strategy. Fisher

24:24

changed neither. But that

24:26

only raises a deeper question. Why

24:29

did Caines change while Fisher

24:31

didn't. Canes

24:36

had lost one fortune in nineteen twenty

24:39

and survived the experience By

24:41

nineteen twenty nine, before the crash,

24:44

he was again pondering his shortcomings.

24:47

His investment strategy, based on the assumption

24:49

that he could predict the ups and downs

24:51

of the business cycle, wasn't working

24:53

out. He started thinking about

24:56

how to change his approach. Canes

24:59

lost more than eighty percent of his

25:01

net worth in nineteen twenty nine,

25:03

but even afterwards, he was still rich. In

25:05

short, he had plenty of evidence

25:08

that had made him as he had experience

25:10

of making mistakes in the past and bouncing

25:12

back, and he was still comfortably

25:15

off. Why not change.

25:18

By the early nineteen thirties, Cans had

25:20

abandoned business cycle forecasting

25:22

entirely. The greatest economist

25:25

in the world had decided he just

25:27

couldn't do it well enough to make money. As

25:30

time goes on, I get more and more

25:32

convinced that the right method in

25:34

investment is to put fairly large sums

25:36

into enterprises which one thinks

25:38

one knows something about and in the management

25:41

of which one thoroughly believes. Forget

25:44

what the economy is doing. Just find

25:46

great companies and invest for the long

25:49

term. And if that approach sounds familiar,

25:51

it's most famously associated with

25:53

Warren Buffett, the world's

25:56

richest investor and a man who

25:58

loves to quote. John Maynard Keynes.

26:01

Kens is rightly viewed today as a

26:03

successful investor at King's College.

26:06

He recovered from the poor performance of

26:08

the early year. He secured

26:10

high returns with modest risks,

26:12

outperforming the stock market as a whole

26:15

many times over. It's

26:17

an impressive reward for being

26:19

able to change your mind. Irving

26:26

Fisher was in a very different situation.

26:29

Irving Fisher's business page had

26:31

graced newspapers across the country.

26:34

When things turned sour, Fisher was a scapegoat

26:36

in front of the entire United

26:39

States. The New York Times

26:41

reported that the bubble had been blamed on

26:43

US Treasury Secretary Melon, former

26:46

President Coolidge, and Professor Irving

26:48

Fisher of Yale. And

26:50

Professor Irving Fisher of Yale

26:53

was in deep financial trouble. The

26:55

fact that his investments were made using leverage

26:58

meant that both gains and losses

27:00

were magnified. What had

27:03

seemed like brilliance before the crash

27:05

was catastrophic afterwards. Fisher

27:08

was staring in the face of bankruptcy, the

27:11

loss of his house, his businesses, everything.

27:14

For example, one of Fisher's major

27:16

investments was in the stationary company Remington

27:19

Rand. It was fifty eight dollars

27:21

a share before the crash, dropping to

27:23

twenty eight dollars within a few months. At

27:26

that point, Fisher borrowed more

27:28

money to invest, but the share

27:30

price kept falling all

27:33

the way to one dollar. You

27:35

could imagine his desperation. But

27:38

surely being in such a tight spot

27:40

would have made Fisher more likely

27:43

to adapt his strategy. Not

27:46

necessarily, I've

27:52

received another message. Everyone,

27:54

get your overcoats and stand.

27:56

Life has moved. Okay,

27:59

okay, kids, Okay, everyone

28:01

sit quietly in the living room. We

28:03

shall act as if this were just an ordinary

28:06

gathering of friends. Remember

28:08

Dora T. Martin and her UFO cult.

28:11

They've persuaded themselves that the world

28:13

is about to be flooded and that they will be

28:15

saved at midnight by aliens

28:18

delivering them safely to planet Clarion.

28:20

And remember too, that the psychologist

28:23

Leon Festinger has infiltrated

28:25

the cult. His researchers were there

28:27

that night to observe what happened.

28:30

Festinger had a striking prediction

28:33

that when the aliens didn't appear, many

28:36

cultists wouldn't be discouraged by the

28:38

clear failure of missus Martin's

28:40

prophecy or feel angry and betrayed.

28:43

Instead, they would redouble

28:45

their efforts to believe another

28:50

reporter, in no doubt, just hang up. Our

28:52

preparations cannot be

28:54

interrupted. We'll call them later if

28:56

we have anything for them. Hasn't

28:58

the clock has midnight or so that

29:03

clock is love, Look at the other clock.

29:07

I said it myself this afternoon, and it's not midnight

29:10

yet one minute at

29:12

midnight, and not a player this chalistry.

29:17

At midnight, the aliens did

29:20

not appear nobody

29:23

said a word. One of the

29:25

more casual cult members, who

29:27

had expressed skepticism before, picked

29:30

up his coat and hat and walked

29:32

out. No,

29:36

Carmen, we have nothing to tell you. People

29:39

tried to make sense of what was happening, or

29:41

rather not happening. The theories

29:44

grew ever, wilder. People were confused,

29:46

exhausted. Leon Festinger's observers

29:49

tried to ask why the sorcer hadn't

29:51

come. The group didn't want

29:53

to talk about it, and

29:56

then at four o'clock

29:58

in the morning, Dorothy

30:01

Martin put her face in

30:03

her hands and began to

30:05

weep. One

30:07

of Festinger's researchers stepped

30:09

outside for some air and discussed the

30:11

situation with a leading cult member. I've

30:15

had a long way to go. I've given up

30:17

just about everything. I've cut every tie,

30:19

I burned every bridge. I've turned

30:21

my back on the world. I can afford

30:23

to doubt. I have to believe.

30:29

They went back inside, But

30:31

at four forty five am,

30:34

Dorothy Martin, with hand

30:36

shaking, picked up a pencil

30:39

and began to write. It was,

30:42

she said, a new message.

30:45

Because of the faith shown by

30:47

that small group of people, the

30:49

earth had been spared destruction,

30:53

a higher power would save not only

30:55

the small cult but the entire

30:58

human race. At

31:01

this the cultists acquired new

31:03

fervor, going out to greet the dawn

31:05

and tell people the good news. They

31:07

suddenly became evangelists, issuing

31:10

statements to the press rather than batting

31:12

them away. Dorothy, is this the

31:14

first time you've called the newspaper yourself?

31:17

Oh? Yes, this is the first

31:20

time I've ever called them. I've never

31:22

had anything to tell them before, but

31:24

now I feel it's urgent.

31:27

We should call the Associated Press and the Oneida

31:29

Press. This thing is pretty important.

31:32

It's a very big thing, bigger

31:34

than just one newspaper. I don't

31:37

think the creator would want this to be an exclusive

31:39

story any Definitely not. Oh

31:42

no, all right, correct, it's got to be for everybody.

31:44

It's for everybody. Correct. Yes, Festinger

31:48

had been right. His view that the cultists

31:50

would redouble their efforts to believe

31:52

in the face of failure was based on a

31:55

theory he called cognitive dissonance.

31:58

Cognitive dissonance predicts that

32:00

people will start to squirm when they

32:02

hold contradictory thoughts, such

32:04

as it's worth quitting

32:06

my job in order to be collected by

32:08

aliens, and the

32:11

aliens did not show up. People

32:14

often deny the obvious in order to

32:16

reduce the discomfort, and the

32:18

more suffering people have put themselves

32:20

through on behalf of a belief, the

32:22

more likely they are to cling onto it.

32:25

Otherwise, all that suffering

32:28

would seem ridiculous, would

32:30

it not. Festinger's

32:34

theory applies perfectly to

32:37

poor Irving Fisher in the

32:39

nineteen thirties. He believed himself

32:41

to be a man of logic and reason,

32:44

and yet he was deeply

32:46

in debt, the most famous financial

32:49

basket case in the country. In

32:52

fact, if people today know just

32:55

one thing about Irving Fisher, it's

32:57

this. Two weeks before

33:00

the Wall Street crash began, he

33:02

was quoted by The New York Times, starks

33:05

have reached what looks like a permanently

33:07

high plateau. How

33:10

do you back away from that? Fisher

33:13

went deeper and deeper in debt to

33:16

the taxman and to his brokers.

33:19

Towards the end of his life. He was a

33:21

marginalized figure, a widower,

33:24

an easy target for scam artists

33:26

and their get rich quick schemes

33:28

because he was always on

33:30

the lookout for a way to revive his

33:32

fortune. He never

33:34

did. Although

33:37

Canes had much in common with Fisher,

33:39

he was a different kind of character. Recall

33:43

came to his comment to his father, this high

33:45

stakes gambling amuses

33:47

me. The Monte Carlo gambler knew

33:50

all along that while investing

33:52

was a fascinating game, it was a

33:54

game nonetheless, and one

33:56

shouldn't take an unlucky throw of the

33:58

dice too much to heart. When

34:01

his investments flopped, he tried

34:03

something else. Fisher

34:07

and Canes died with in a few months

34:09

of each other. Not long after the end

34:11

of the Second World War. Fisher

34:14

had become irrelevant. Canes

34:17

was the most influential economist on

34:19

the planet, fresh from shaping the

34:21

World Bank, the IMF, and the

34:24

entire global financial system.

34:27

Looking back, Canes reflected,

34:30

my only regret is

34:32

that I have not drunk more champagne in my

34:34

life. But he's remembered far more

34:36

for words that he probably never said.

34:39

Nevertheless, he lived by

34:42

them. When my information

34:44

changes, I alter my conclusions.

34:48

What do you do, sir? If

34:51

only he had taught that lesson to

34:53

Irving Fisher. You've

35:00

been listening to cautionary tales.

35:03

If you'd like to find out more about the ideas

35:05

in this episode, including links to our

35:07

sources. The show notes are on my website,

35:10

Tim Harford dot com.

35:12

Cautionary Tales is written and presented

35:14

by me, Tim Harford. Our producers

35:17

are Ryan Dilley and Marilyn Rust.

35:20

The sound designer and mixer was Pascal

35:22

Wise, who also composed the

35:24

amazing music. Starring

35:27

in this season are Alan Cumming,

35:30

Archie Panjabi, Toby Stevens

35:32

and Russell Tovey, alongside

35:34

Enzocellente, Ed Gochen, Melanie

35:37

Gutteridge, Mass Siam and Rowe and rufus

35:39

Wright and introducing Malcolm

35:42

Gladwell. Thanks

35:44

to the team at Pushkin Industries, Julia

35:47

Barton, Heather Faine, Mia LaBelle,

35:49

Carlie Migliori, Jacob Weisberg

35:52

and of course the mighty Malcolm

35:54

Gladwell. And thanks to my colleagues

35:56

at The Financial Times.