Optimism for pessimists

29 October 2021

reading time:  minutes

TLDR: High-level thoughts. Less relevant to any specific decision, but more about the lenses through which we see the world, which can in turn inform our decisions.

In the last year or so, something weird has happened. I’ve become an optimistic person.

This is weird for many reasons, including:

  • The fact I’ve spent most of my 40+ years of life as a Pessimist with a capital P. (I often come across as an optimist, but my mind errs towards worst-case scenarios.)
  • Have you noticed what has been happening lately???!!!

In this article, I want to reflect on why my thinking has shifted.

First, let’s get really morbid 😈

In the past few years, I’ve been thinking a lot about existential risk.

Below is a chart from an unscientific sample of two dozen people, when asked about the probability of humanity suffering an existential threat in the next 100 years.

(Source: people who have provided feedback in relation to this blog, and participants of Stealth Wealth. I’ve spoken with most of these people and they are all intelligent, thoughtful, charming, and good-looking.)

Not a single person from this ragtag sample thinks there is a 0% chance, and only a sliver think it’s very unlikely. 13% of thoughtful people think it’s virtually certain.

Whoa!!!

For reference – I sit around the 14% mark. This seems to make me optimistic compared to this reference group – although when I weigh the consequences, in terms of lives lost and lost potential, it’s waaaaaaaaaaay higher than I’d like it to be.

Why is my figure so specific? It’s borrowed mainly from Toby Ord’s assessment in his masterpiece, The Precipice, adjusted downwards for the pandemic-related reasons given below. When the book was published, Ord gave a 17% (1 in 6) probability, based on a systemic assessment of the major risks we face.

Thinks could be terrible. But they could be great, too

A 14% percent change of an existential event in the next 100 years is way too high. We can’t eliminate the risk, but I think it’s worth investing more resources as a society to make this less likely – and accepting some strategies that might not seem palatable to many.

Having said that, a 14% likelihood of something bad happening suggests there’s an 86% probability it won’t happen! That’s great.

Let’s step back and make some wildly general, massively over-simplified scenarios for our collective future:

  • Humanity experiences an existential event. (When I refer to an existential event, I’m borrowing Ord’s definition as the “permanent destruction of human potential”. This includes human extinction – or, short of extinction, the irreversible collapse of civilisation.)
  • The future is worse/more dystopian than we hope. For example:
    • Climate change has an enormous negative impact. Interestingly, I think it would need to be even larger than most economic estimates – one of the worst-case models is a loss of around 10% of total economic value by 2050 (Swiss Re estimates based on temperature increases staying on current trajectory, assuming the Paris Agreement and 2050 net-zero emissions targets not being met; as a reinsurer, Swiss Re has skin in the game in terms of making good assessments). On the face of it, I don’t think a 10% drop in economic value would be terrible, especially if there is economic growth between now and 2050, which would mean the world would still be better off in 2050 with climate change than it is now. That is, until I consider the potential second-, third-, and n-th-order effects. For instance, the impact won’t be distributed evenly across all countries and that it will result in significant geopolitical tensions with unpredictable and negative outcomes.
    • The AI doomsayers end up being correct, and the AI alignment problem ends up being a big deal, and not addressed. We could find that all of our atoms are transformed into paper clips.
    • Donald Trump wins a second term in 2024 and is even worse the second time around than I fear, casting a long, dark shadow. (I fear the slow coup. More broadly, the dynamics that resulted in Donald Trump becoming president in the US haven’t disappeared.)
    • There are enormous technological innovations, but the benefits of these technologies, and the surplus they generate, is hoarded among an ever-decreasing class of people that is increasingly harder to join.
  • Things tick along as they are, with incremental improvements over time. To the extent we have any significant improvements, they are largely offset by the challenges we deal with, such as the consequences of climate change and the destiny of demographics (ie, high dependency ratios).
  • Things get way better! Some or all of the promise of AI, sustainable energy, biotechnology (eg CRISPR), 3D manufacturing, and the like, will come to fruition. In this case, we’ll enjoy a quality of life even higher than we can imagine or discuss soberly without seeming crazy. Some of our grandchildren or great-grandchildren might live for hundreds of years or more, and/or end up living elsewhere in the galaxy.

My personal guess

My personal guess is that the most unlikely scenarios are:

  • an existential threat (~14%), or
  • business as usual (~20%). 

I’m not saying they won’t happen – there’s a good chance they will.

Unfortunately, I think the risk of a more dystopian future is high (~25%) (I’m still something of a pessimist!).

But I think the most likely scenario is that the future will be significantly better than what it is now (~40%).

Recalibrating my assessments

I’m a Bayesian at heart, trying to recalibrate my predictions (priors) based on new information and perspectives coming to light.

Here is where I’ve changed lately, and shifted more towards optimism:

I’ve been thinking more clearly about existential threats

The truth is usually better than the nightmare. Things often end up being less scary once you look at them head-on.

Simply put, these risks aren’t so amorphous any more. I have a framework for thinking about them (derived mainly by studying Ord’s book, but also from other resources like Josh Clark’s excellent podcast series “The End of the World”). For example, I now think in terms of natural risks (such as asteroids or comet impacts, supervolcanic eruptions, or stellar explosions), in contrast to anthropogenic (human-created) risks.

It’s the anthropogenic risks that scare me. Nuclear war, environmental damage making Earth inhabitable, unaligned AI, and engineered pandemics. It’s only in the past 100 years or so that we’ve developed the means to make ourself extinct.

From an existential risk perspective alone, I think we are in the most important century of our history. My sense is that we’ll get through this period, and work out how to manage these risks more effectively, or we’ll fail to get through the great filter.

You can’t short the apocalypse 

There are different ways of managing risks. You can avoid them, reduce their likelihood, mitigate their potential impact, and transfer them (eg, via insurance or by sharing risk with others). Sometimes, the best thing to do is to accept a risk.

I’ve come to peace with the fact that my personal plans for the future are predicated on the fabric of society being maintained. If we stop living in a society with rule of law, then all bets are off.

I’m happy to be prepared for minor disasters, but I’m not going to be a prepper. It’s a single decision that has removed lots of decisions. Making this decision has taken a weight off my shoulders.

Some of my priors have changed

Of all of the anthropogenic risks that scare me, the big one is a pandemic, and an engineered one in particular. This was even before COVID-19.

As bad as COVID-19 has been, it could have been much worse. I’m adamant we dodged a bullet.

I wish COVID-19 had been addressed more effectively. But there are some causes for celebration. One of these was how quickly multiple vaccines were developed and made available.

Another is that the economy was more resilient than I thought it would be. My concerns about supply chain issues were possibly overblown. (This isn’t to discount all of the hard work that went behind the scenes by people to make sure that supply chains didn’t fall over any more than they did.)

Additionally, many of us were able to continue to adapt and be productive. This is likely to become even more the case as time goes on. In fact, the past couple of years have probably accelerated trends to make this happen.

I think the speed of vaccine development has had the biggest impact on me. To quote Patrick Collison’s description on his list of “examples of people quickly accomplishing ambitious things together”:

“On January 10 2020, the SARS-CoV-2 genome was published. 3 days later, Moderna finalized the sequence for mRNA-1273, its mRNA vaccine candidate; the first batch was manufactured on February 7. On February 24 (45 days after genome publication), Moderna shipped the first batch of mRNA-1273 to the NIH for use in their Phase 1 clinical study. 266 days of clinical trials and regulatory coordination followed. On November 16, Moderna announced that the vaccine's efficacy was 94.5%.

This has given me a sense of optimism in two respects:

  • If another virus comes, it has increased my confidence that a vaccine will be made available quickly – and perhaps more quickly, based on experience from this time around. All things considered, I think we’re in a better position for dealing with future pandemics, and this has reduced the probability I give for humanity suffering an existential event due to pandemic. A reduction of 3% may not seem much, but in terms of consequences and expected value, it’s huge. 
  • This has increased my faith in science, technology, and innovation. For all the things that were mismanaged and went wrong, the science went right. WHAT ELSE CAN BE DEVELOPED?? Not just things that ameliorate bad things (vaccines), but in terms of things that can make life better?

I’ll admit: some of my priors have changed for the negative. I’ve become more aware than ever that disparities exist, and I’m less confident that these will be addressed as adequately and quickly as I’d like. My faith in certain types of people, and certain aspects of humanity, have also been tested. But these are outweighed by the other factors.

Things could really get better

Lately, I’ve read some really compelling articles about how the future could get significantly better.

Historically, I haven’t been able to buy into the arguments of optimists like Ray Kurzweil or Peter Diamindis, nor Matt Ridley or Steven Pinker.

Funnily enough, one of the most optimistic writers I’ve come across is Toby Ord. For a book about existential risk, The Precipice is an extremely optimistic book.

Ord also has some peers who have made some good arguments, as well. I won’t summarise them, but a couple of really good pieces are:

What if the world gets better? 

This is more speculative. But some preliminary thoughts in case things get way better than we think:

  • Most innovation is deflationary, in the sense that it allows us to produce more things with less resources. TVs are a case in point: a $1,000 TV today will buy something unimaginably good compared to the most expensive TV of 20 years’ ago. A lot is said about how technology will disrupt a lot of industries (such as self-driving cars making a lot of existing roles redundant). I don’t want to discount the individual costs, but the bigger picture is that turning labour into capital usually makes a lot of goods and services more affordable to the public at large, and allows people to be productive in other ways over the medium- to long-run.
  • Scarcity, however, will continue to be a big factor. There will continue to be things that are scarce. Some of these are fundamentally scarce – like property in desirable locations, or people with rare and valuable skills and knowledge. Ownership stakes in companies with significant scale (ie, publicly listed companies) will also be scarce. Some things will continue to be scarce, albeit it in a more manufactured way – intellectual property, or blockchain-created scarcity. Assets that continue to be scarce and in demand are likely, over the long-run, to become more valuable.
  • Talking about scarcity, I suspect New Zealand will continue to be an attractive country, relative to other countries around the world. Our ability to deal with pandemics, in particular, is better than most. My understanding is that we’ll be impacted by climate change, but not as much as other countries. Think of it this way: our population is currently a little over 5 million people. Are we likely to attract resourceful people with capital? My guess is yes.

The chart above is sourced from Stats NZ. I’m a little more optimistic than these projections. I think it’s likely that I will see the population reach 10 million people in my lifetime.

(FWIW: asking people when they think New Zealand’s population will reach 10 million is an interesting conversational gambit.)

Getting an outside view

I am personally more optimistic than I’ve ever have been. In this article I’ve created a partial narrative above that supports my own thinking.

In Thinking, Fast and Slow, however, Daniel Kahneman encourages us to test our “inside view” with the “outside view”.

One way of taking the outside view is by finding proxies for what other people think.

All the better if those proxies involve money. It’s one thing to voice an opinion. It’s another to put your hard-earned cash behind an opinion. As the saying goes, “a bet is a tax on bull$hit”.

Even better if you can find proxies that approximate lots of people’s views. Well-functioning markets are good for this.

Two good proxies for this are:

  • The performance of publicly listed companies, especially as measured by broad indexes, such as the NZX50 or S&P500.
  • The performance of the local residential property market. (I think this is less “efficient” than the market for publicly listed companies, but it’s still a proxy.)

In the past couple of years, share prices (in general) and the NZ property market have performed well. This is different to what a lot of people might have thought in March 2020, but it is what it is.

As I type this (23 October 2021), the S&P500 has increased by over 31% in the past 12 months. CoreLogic’s Quarterly Property Market & Economic Update for quarter 2, 2021 states that New Zealand’s house price index has increased by 22.8% over the prior 12 months.

The value of a publicly listed share, or the value of a given property, isn’t just about the relevant assets and liabilities, or current or historical level of income and expenses. It’s about confidence – or otherwise – regarding the future prospects for that asset.

If the value of something increases significantly over a short-period of time, that indicates that people are optimistic about its future. Presumably, this includes an assessment about the future in general.

If it’s a market with lots of players, where people have to put their money on the line, then this is indicative of something, whatever my own biases or thoughts on the matter.

To me, these headline figures indicate something. OPTIMISM ABOUT THE FUTURE. This might seem weird in light of everything that has happened over the past 18 months.

This optimism won’t be for the precise reasons that I give, but for some people, there might be some overlap.

(NB. Looking at individual shares or properties, there can be confounding factors relevant to the specific assets in question. Looking at the market as a whole, however, provides a broader indication of sentiment, or optimism, in relation to the future.)

Beware the narrative fallacy

I’m not sure whether what I’ve discussed in this article is compelling to you or not, and why that’s the case. Either way, I’ll make a final note of caution.

Truth be told, I hold onto this commentary pretty loosely. The weighting I give will change based on the day we speak and the time of that day.

I don’t have a crystal ball, and I EXPECT that some of what I say will be wrong in some fundamental way. You should take what I say about the future with a grain of salt. I do. At the very least, my probability assessments will change.

It’s also worth noting that my personal sense of optimism may be a post-hoc rationalisation, linked to feeling more settled in personal financial situation and the stability and trajectory of Fairhaven Wealth as well as my wife’s career. (If anything, I wonder if, like many other households, we are over-confident after COVID-19.)

It may even be more mundane this has. My optimism has coincided with becoming a teetotaler. Perhaps alcohol truly is the thief of tomorrow’s happiness (~optimism).

I am also not saying that there won’t be a significant drop in the share market, and/or the property market. For one thing, optimism and pessimism about the future can and will change. There can be all sorts of other, specific, interacting reasons for all of these things.

Choose your illusion

Having said that, I think it’s worth thinking about the future in this high-level way – and having different lenses for thinking about the future.

When making big decisions, it pays to contextualise these decisions within a bigger picture of what the long-term future. Nothing is an island. All big decisions are a confidence game in one way or another.

It turns out, that I’m a lot more optimistic, and confident about the future, than I ever have been. This has been informing quite a few big decisions in 2021. They’re not the sort of decisions I’d have made in the past, but I’m confident (optimistic!) that they’ll pay off.

(... he writes from Christchurch, near the end of October 2021, before local community spread of COVID-19, and before his children have to be schooled from home, any day or week from now...)

Other reading or listening


Tags

existential risk, future, optimism, pessimism, the future


About the author 

Sonnie Bailey

Sonnie provides financial planning services via his business, Fairhaven Wealth (www.fairhavenwealth.co.nz). Fairhaven Wealth provides independent, advice-only, fixed-fee financial planning services. Sonnie is also a “recovering lawyer”: he has specialised in financial services, trusts, and estate planning.

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