Richard Feynman on Economics – Cargo Cult Science

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During his recent interview with Tobias, Dylan Grice, co-founder of Calderwood Capital Research, and author of the Popular Delusion Reports, discussed Richard Feynman on Economics – Cargo Cult Science. Here’s an excerpt from the interview:

Tobias Carlisle:
I think there’s been a lot of introspecting by Austrian economists and value investors particularly over the last decade or so.

Dylan Grice:
Yeah.

Tobias Carlisle:
One of the interesting things, I watched… MIT had this billion price project. Did you ever follow that where they had this idea that they would track all these different prices through the economy and that would create this CPI?

Dylan Grice:
Yeah.

Tobias Carlisle:
When that first launched that seemed to be tracking well above official numbers. MIT has taken that was, “Well, our calculation must be wrong. We’ll go back in and we’ll make some changes to that.” I was reminded of it as I was reading your… You’ve got that great story about Richard Feynman and then updating the… I think it was Planck’s constant. One of the… In your popular delusions. Am I getting the wrong-

Dylan Grice:
No, that’s right. No it wasn’t Planck’s constant. I think this was something to do when they were measuring the charge of an electron, and the original guy who did the experiment, I forget his name now, he was an Nobel Prize winner and he kind of got it basically right but not quite right. It’s because the way he measured this charge, he used some kind of… ] I think he used some oil and he hadn’t quite gotten the… of the oil right and that was slightly biasing his results. Then what happened over the next 10 or 20 years was that when physicists tried to replicate his measurement, they were coming up with a different answer. They would find a way to lower it, so that it was like his original answer.

Dylan Grice:
This kept happening until someone realized the mistake. No one actually wanted to stand up and say, “No, I think that’s wrong.” Why is that wrong?

Tobias Carlisle:
So Richard Feynman has… There’s another great experiment in there where somebody… This is something I followed pretty closely, the replication crisis. I’m kind of interested in it because there’s so many things that have been particular in the psychological studies and social sats, but also in medical, in medicine, and various other things like that. There have been these findings that they were unable to replicate, and Feynman makes a good point that they made be an incentive not to try to replicate it at all, and then he says if you’re going to conduct an experiment where you’re changing some part of the experiment, you need to first of all, you need to replicate the original experiment, and then under your own conditions with your own apparatus go and change it.

Dylan Grice:
Right. Absolutely correct.

Tobias Carlisle:
You included that in one of the popular delusions, the great discussion on it. I don’t know if you can remember the story.

Dylan Grice:
I mean, you just said it. These are the basics of… I mean, obviously finding a Nobel Prize winner physicist and his love was physics. His passion was physics and his criticism… This was a speech, 1974 speech he gave at Caltech, and he was actually criticizing the academic establishment for not being diligent enough with replicating other people’s work. He gave a couple of examples. I think there was an astrophysicist. I think it was someone else who was working on a kind of Aspen Collider and in each case when that person had basically asked to replicate the work that they were hoping to build on, they were told not to waste the time. They don’t have the budget, they don’t have the resources. It finally is, you just go on and do what you were going to do. There was this pressure… There is this pressure. Simon was talking about this pressure that academic institutions are under to find something new. To generate new conclusions, new results, to find new science. Right?

Dylan Grice:
He then in the same speech talked about the same kind of thing happening in psychology and he basically gave a warning. He called it… science. The… are the kind of the… who had never really… I believe that it’s actually just kind of a standard phenomenon that anthropologists talk about and it’s reasons are well documented. Is when you have a low-tech society comes into contact with a high-tech society, and the high-tech society then disappears. So kind of think new world explorers, for example. Think some kind of British explorers 17, 18th century. It’s all kind oof the same kind of phenomenon, but the one that Feynman talked about was the… during the second world war, where the Americans had come and used the island as a landing base. They kind of dropped their cargo… The planes would kind of land. They made a runway, they managed to make a runway, planes would land, take off again, and then.., so they packed their bags and went home.

Dylan Grice:
At the cargo… locals kind of built a new runway, and they built a runway to make it look like the old one, and they built a control tower to look like the old one. They built a controller, a kind of… that looked like the controller. They actually had kind of bamboo shoot headphones and a bamboo shoot microphone. So everything was replicated to look just like the setup that the Americans had put down because the idea was that if they could make it look like the Americans did, we’ll get the cargo. We’ll get the good stuff. Richard Feynman would say, if you make your science look like science, you’ll get the same result that the cargo cult guys got, which is nothing. Just because it looks like the thing doesn’t mean it is the thing.

Dylan Grice:
Effectively his warning, which went on TV, was I think is now known as the replication class crisis because people are not doing science. They’re not doing honest inquiry. They’re trying to find something new for the sake of it because the pressure academic institutions are under to find something new is exactly the same kind of pressure and that’s why I find this interesting, is the exact same kind of pressure that financial players are under. Right? To launch a fund and to demonstrate why this is such a brilliant idea. Right? Have to launch an EPF and to demonstrate why… Because look, we’ve done the back…, we’ve done the science, we’ve actually brought in some academics from some Ivy League University, and they are now an advisor to our board.

Dylan Grice:
So we’re putting the science into… No, that’s what we’re asking. Is this science any better? Is this real science? Is it real financial science or is it cargo cult science. I think my view is it’s cargo cult science. A lot of these factor ETFs, a lot of these… ETFs, it’s amazing how many of them are no longer working now they’ve gone live. But a lot of these factors, a lot of these risk premier, they’re just not there. They’re not there when you actually try and test them in a real world and the answer I think is because this wasn’t science. This was cargo cult science.

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