Charles Peters … had a slogan … “If you’re not afraid of being right too soon.” But of course, everyone is afraid of being right too soon. It’s bad politics, being out of step with the herd; it looks like you’re greedy if you profit from being wise while others suffer from their stupidity. People want to be “right” at the same time everyone else is — with the result that they delay action until the crunch hits with devastating force. Take the case of Goldman Sachs, this week’s favorite whipping boy. “Goldman Sachs sought to protect itself from a collapsing housing market by selling mortgage investments that it knew were likely to fail,” read the lead of a Post story posted on the Web Monday. Scandalous! Why didn’t they wait and get cratered like the folks at Lehman Brothers, R.I.P.?
The herd gallops toward the precipice for a simple reason: It’s lonely and unpopular to go the other way. Take the question of tax policies that could avert the next big U.S. financial disaster, which is our ballooning federal deficit. The sensible real-world answer, many economists argue, is a value-added tax that would encourage saving at the same time it pays down the deficit to manageable levels. But politicians are terrified of being right too soon on this one.
David Ignatius is right; this applies in politics, news, and even academia. Being into a topic or a position well before others gets you much less than being into it just as others are getting in. Arnold Kling echos:
Here are some of the phrases that are used to describe the Outsiders, the money managers who were right about the subprime bubble: “rude” blunt” “bothers people” “socially cut off” “isolated” “not hearing the signals”.
More emphasis on institutions like prediction markets would create more incentives to be right before others. But, alas, I suspect this is a big reason why folks are reluctant to create them; they don’t want people to be rewarded for being right before they were. They don’t like Goldman Sachs being rewarded for being right first.
In general, we don’t mind rewarding the fashion-savvy; those who pick up a fashion just as it is getting popular signal that they are well connected with fashion leaders. But be too far ahead and you just look random, weird, and lucky; not well connected. We also don’t mind rewarding “leaders” who know when our crowd is going where, and who “lead” by jumping out and marching in front of us; forager leaders did that all the time. But we distrust folks who are rewarded for opposing our crowd; they are not leaders but are outsiders and enemies, and must be crushed.