was the green lantern a good chap?

on having one's head in the game

One of my favourite ever short essays was Paul Wilmott’s piece on risk management and the limits of mathematics, from 2008. He invites the reader to imagine that they are present at a magic show, and the greatest magician in the world asks them to name a card. “Ace of Hearts”, for example. The magician then fans out a pack of cards and draws one out without looking.

What’s the chance that this card is the Ace of Hearts?

Obviously, my readers are far too intelligent to answer “1 in 52”, I hope. It’s not a random process (and even if it was, you forgot about the jokers). The smart people answer “100%”, because they understand that the magician has complete control over the trick.

But wait!

Wilmott then points out that this is the greatest magician in the world, not a ten-year-old who has watched some YouTube videos. Surely she isn’t just going to draw a named card from a deck and expect the audience to be impressed? The chance that this card will be the Ace of Hearts is close to zero – it will be tonight’s winning lottery ticket, or a tarot card with your face on it, or a photograph of the magician outside your front door holding up the ace of hearts or something.

It’s a great motivating example to start people thinking about real world risk management and scenario analysis. But the thing which stuck with me, from the time I saw Wilmott do this bit at a lecture, is that he claims that a lot of risk management professionals (and a lot of bank regulators) get very stuck on the idea that the “real” answer is 1 in 52 and that other cases don’t need to be considered because they’re cheating.

I’ve never really experienced someone like this because I move in somewhat different circles and only talk to the more outgoing and interesting kind of quant. But I can completely believe it. The shift in perspective from “what’s possible within a system” to “the wider environment in which the system is embedded” is difficult to achieve.

To take a current example, consider the Constitution of the United States of America, and the way in which it constrains the powers of the executive. A while ago, some politics profs coined the phrase “Green Lantern Theory” (it’s some kind of comics reference), to satirise people who were criticising the Obama administration for lack of ambition. The idea was that it was kind of silly and childish to believe that US Presidents could make things happen simply because it was their will; this simply wasn’t how the system worked.

Anyway, I went back to a few of those guys late last year, to inquire whether they were planning on revising the theory in the light of developments.

In fairness, most of them took it with good humour, but a surprising number of people seemed to regard the question itself as unfair, illegitimate and illustrative of the same kind of childish ignorance as the original Green Lantern Theory. Of course a President who is willing to ignore or override the checks and balances can do whatever he (or, in principle, she) wants! That’s not the point!

At this point, people might reasonably remind me of the fabled “post-it note” which is meant to shape the editorial policy of this ‘stack. (A mythical note that’s meant to be stuck to my computer, saying “don’t use the newsletter to pursue feuds and arguments from social media”). And, fair enough. But I think there is a deeper and more important point about politics underlying things here.

Which is that the defence of Green Lanternism are factually right, but that falsifies the original theory. It is always possible to break norms, if you’re really determined to. Everything does, in fact, depend on having people in positions of power who respect the rules of the game. The British “good chap” system is just much more blatantly in your face about it.

Which might account for the longevity of the Westminster system. It is incredibly fragile, but it’s obviously fragile, and in this way achieves a sort of paradoxical antifragility. In a “good chap” system, when a bad chap shows up, all the good chaps know that they have to band together and oppose or get rid of them, because they know that there are no systemic constraints on badchappery. In a system that’s meant to be full of checks and balances, it is much easier for a kind of bystander effect to develop, where everyone waits for the system to protect itself without understanding that the system is just them.

And, of course, what happens when good chaps do nothing? The triumph of bad chaps, that’s what.