Investments, Retirement, And Faith

Every now and then I find the stimulus to a post in a completely unexpected place. Today, the stimulus comes from this article on retirement preparations in the Wall Street Journal:

Take a few minutes. Add up your basic annual expenses, and make sure to include the taxes you’ll owe on required and voluntary withdrawals from your retirement accounts and on the income and capital gains in your taxable assets. Then subtract your Social Security and, if you’re lucky, pension checks. This leaves you with your residual living expenses, or RLE....

The rub is that your retirement is reasonably assured only if the bulk of those assets is in relatively safe holdings.... As such, this may be a good time to start reducing the risk in your portfolio....

I bear in mind Blaise Pascal. The great 17th century philosopher and mathematician posited that belief in God was a paying proposition: If one believed and was wrong, all that was lost was a lifetime of unnecessary piousness and Sunday sermons. Betting against Him and being wrong, on the other hand, produced a different and rather warmer outcome. In other words, the probability of error matters less than its consequences. Put yet another way, when faced with the imponderable, the wisest course is the one with the most acceptable worst-case scenario. [Emphasis added by FWP.]

This, not to put too fine a point on it, is pure horseshit.

The probability of the various possible outcomes always matters. If the probability of total calamity – in the above case, a devastating crash in the equities market – is near enough to zero, you can neglect it in your planning. (This is especially the case if there’s no possible way to brace yourself for that outcome.) The difficulty lies in determining that probability.

Far too many people have far too much faith in their visions of America’s economic and fiscal future. Certain people -- I’m thinking specifically of militant evangelistic atheists such as Richard Dawkins:

Science, after all, is an empirical endeavor that traffics in probabilities. The probability of God, Dawkins says, while not zero, is vanishingly small. He is confident that no Flying Spaghetti Monster exists. Why should the notion of some deity that we inherited from the Bronze Age get more respectful treatment?

Dawkins has been talking this way for years, and his best comebacks are decades old. For instance, the Flying Spaghetti Monster is a variant of the tiny orbiting teapot used by Bertrand Russell for similar rhetorical duty back in 1952. Dawkins is perfectly aware that atheism is an ancient doctrine and that little of what he has to say is likely to change the terms of this stereotyped debate. But he continues to go at it. His true interlocutors are not the Christians he confronts directly but the wavering nonbelievers or quasi believers among his listeners – people like me, potential New Atheists who might be inspired by his example....

Dawkins looks forward to the day when the first US politician is honest about being an atheist. "Highly intelligent people are mostly atheists," he says. "Not a single member of either house of Congress admits to being an atheist. It just doesn't add up. Either they're stupid, or they're lying. And have they got a motive for lying? Of course they've got a motive! Everybody knows that an atheist can't get elected."

...have far too much faith in their own unverifiable, unfalsifiable faiths to admit that there’s no way to gauge the “probability” of the existence of God.

(A tangent of importance: Dawkins’s posturing is doubly wrong. Science does not “deal in probabilities.” It deals in induction from available evidence, the inference of hypotheses to explain observed patterns, the design of experiments that test those hypotheses, and the absolute principle that science offers no proofs and no final answers: i.e., that one failure to predict a properly designed, reproducible experiment’s outcome will falsify any hypothesis, regardless of its previous successes. This is called scientific method, with which pseudo-scientists such as Dawkins who prattle glibly about “scientific proof” are apparently unfamiliar.)

The mathematical purist’s approach to probability relies entirely upon the number of possible outcomes and their frequencies as derived from the governing distribution function(s). This is fine when discussing wholly hypothetical situations such as a completely random selection of one of an array of numbers, all of whose values and frequencies are known. However, it is not applicable to most real-world situations.

The best approach to gauging the probability of a real-world event is empirical. For example, flip a randomly selected coin a thousand times and keep a tally of the heads and the tails. That will give you a close estimate of the probability of each outcome for that coin. Similarly, one can look back at the history of the equities markets since they first arose in organized form, measure the average and maximum lengths of the bull markets and corrections periods, and arrive at a personal, disputable estimate of the probability that the current bull market will end soon. There is significant uncertainty in applying such a technique to the equities market. (The likely depth and duration of the correction to be expected, yet another important consideration in allocating one’s assets, is a separate study.)

But there is no way to determine “the probability that God exists.” That would require:

• The attribution of a specific, spatiotemporally based definition to God;
• Deductions from that definition about what circumstances “should” evoke a manifestation of God;
• A tally of observed manifestations of God and failures to observe such manifestations.

There’s only one word for any such proposed investigation: ridiculous.

Which establishes -- to the limits of measurement, as we engineering types like to say -- that William J. Bernstein, the author of the Wall Street Journal article, has substantially misstated the basis for personal financial planning, and that Richard Dawkins, who makes absurd arm-waving arguments about “the probability that God exists,” is an arrogant idiot who’s merely unhappy that his atheistic faith isn’t shared by the entire world.

Quod erat demonstrandum.