Why ISIS Is Ignorant, But Not Wrong

It is clear that we in the West do not agree with ISIS. We think that what they think is wrong, and more importantly: we think that what they do is wrong. They decapitate Western journalists, promote violence against people who don’t agree with their religious beliefs, organize terrorist attacks, and even destroy Iraq’s cultural heritage – statues that were over 5000 years old. How can they do this? Why do they do this? Is it due to their set of (religious) beliefs? And if so, can we then judge them for doing what they think is the right thing to do?

First a rather obvious observation: people from different cultures or societies have different ideas about what is right or wrong. This view is called descriptive moral relativism, and it’s a moderate, empirical claim, that is corroborated by reality. Look only at the people of ISIS, who think that what they do is spreading the true message of Allah, and who think that anyone who disobeys this message is wrong. They believe that they should stick to a very strict interpretation of the Islam, and that people who don’t do this, should be done away with. If not by words, then through force. We in the West clearly find their ideas about what is right and wrong absurd. Hence ISIS and us, clearly, disagree about what we find right and wrong.

We could go one step further than this claim, and say that ISIS and us don’t merely have different ideas about what is right and wrong, but that neither of us is more right or wrong than the other in having these ideas. There are many cultures and equally many ideas about what is right and wrong, but there simply is no absolute, culture independent interpretation of right and wrong.

And there is something to say for this so called meta moral relativism. After all, acts can hardly be judged wrong in any absolute sense; that is, without regarding the relevant context. Killing a person might seem wrong, but if you can save one hundred people by doing so, it might actually be a sin if you wouldn’t do it. So the context appears to matter for deciding whether an action is right or wrong. So it could in principle be possible that a culture’s or society’s set of beliefs, taken as the relevant context, genuinely determines whether an action is good or bad. Applied to the ISIS case: it is not only that they have the idea that destroying Iraq’s cultural heritage is right, but given their set of beliefs, it truly is the right thing to do. An equivalent way to say this is that what is right or wrong is determined by nothing but the idea of what is right and wrong. Hence, given that ISIS thinks that what they are doing is right, which I assume they do, their deeds are truly right – for them at least.

Let’s for the sake of argument assume that this meta moral relativism is a correct description of reality: that there truly is a plurality of interpretations of right and wrong floating around, none better or worse than the others. Then, applied to the ISIS case, we have to face a difficult question. Because if ISIS truly thinks to do what is right, how then can we judge them? Okay: we might have a different interpretation of what is right than they do, but we have just established that having a different interpretation doesn’t make their views wrong regardless of the context. Our conception of morality is just different from ISIS’s: different, but not superior.

And, playing the devil’s advocate, don’t we (the West) do exactly the same? It might not be the message of Allah that we try to spread throughout the world, but the message of liberalism and freedom. And we too are willing to go to great lengths to spread this message. History shows that countless of people have been killed because their actions didn’t cohere with our ‘right’ notions of freedom and liberalism – the Nazi’s being just one example.

So it appears that we cannot declare ISIS’s ideas and actions to be more wrong than ours – not while strictly assuming meta moral relativism. That’s a pity.

But there might be a way out. A way in which we can judge ISIS’s beliefs and actions to be wrong, without falling into the pitfalls of meta moral relativism. Because even though we might not be able to say that ISIS’s ideas and actions are absolutely wrong, we can say that ISIS is ignorant. We can say that they have not tried to actively refute their basic set of principles – the principles, derived from the Islam, that make their actions right. For if they would have done so, which I am quite sure they have not (because Allah’s words seem the most basic principles guiding their thinking, and even doubting these principles is wrong), it seems hard to imagine that they would have still accepted such principles.

So we can say that ISIS is ignorant, which in itself could be found immoral. But let’s not go there…

What do you think?

Why It Is Possible to Make Above Average Returns – Even in Efficient Markets

There is a well-known hypothesis in financial economics, called the Efficient Market Hypothesis (EMH), that spawns a lot of debate. The EMH states that financial markets are ‘informationally efficient’. In other words: a financial asset’s market price always incorporates and reflects all available relevant information. Hence no investor can consistently use such information to find stocks that earn him above average returns. After all: such information is already reflected in the asset’s price; so if there is a lot of ‘positive’ information about the company, the stock’s market price will have increased, and if there’s a lot of ‘negative’ information, the price will have decreased.

I want to make an argument why, even if the EMH holds, it might still be possible to consistently earn above average returns on investments. The argument is basically very simple. Let’s first recall the EMH. We know that an efficient market is a market in which the price of a financial asset (let’s say a stock) always incorporates and reflects all available information. Hence, you cannot benefit from the set of available information in such a way that you can consistently earn above average returns on investing in the asset – or any asset for that matter. But does it follow from this that you cannot consistently achieve above average returns? I don’t think so.

Because what if you are consistently better than other investors in anticipating future information? Then, even though the stock’s market price reflects all available information, you can utilize this anticipated future information to decide whether to buy or sell a stock. And if you can anticipate future information (which is information not yet incorporated and reflected in the stock’s price) better than the average investor, then you can earn above average returns, time after time.

This all sounds pretty abstract. So let’s look an example. Suppose there is a stock of a company that produces wind turbines – call it ‘stock A’. Furthermore, let’s suppose that at this point in time investors are on average not confident about wind energy’s potential. They might think that the cost of producing wind energy is too high, its profits depend solely on the current regulation, or that it will still take a long time before our fossil fuels are depleted, making the switch to wind energy not urgent yet. Given these considerations the stock trades at a price of – let’s say – 10. Let’s assume that this price indeed incorporates and reflects all available information – such as information contained in annual reports, expert analyses etc. Hence it seems reasonable to say that you cannot consistently earn above average returns on this stock by utilizing only this pool of existing information.

But what if you believe that, given the ever increasing energy consumption and ever decreasing level of fossil fuels, society has in the middle-long term no choice but to turn to alternative forms of energy – forms such as wind energy? If you think this is true, then you can anticipate that any future information about the wind-turbine producer will be positive – at least more positive than today’s information is. You can anticipate that the future information will show an increase in the firm’s revenues, or – for example, in case the firm is close to bankruptcy but you know that its managers don’t profit from a bankruptcy – a decrease in costs. Given that the market is efficient, you know that at the time this information will become public, the market price of the stock will increase to reflect this information, to a price of let’s say 20. If you can anticipate such future information consistently, then you can anticipate the future stock price consistently, allowing you to consistently earn above average returns – despite the perfectly efficient market.

An equivalent way to look at this matter is to say that you take into account more information than the average investor in calculating the stock’s fair value. Let’s say that you are doing a net present value calculation, and you have estimated the firm’s future cash flows. In case of stock A, investors used estimated cash flows that lead them to a fair value of 10. However, given your anticipation of future information, you estimate these cash flows to be higher – leading you to a higher valuation of the stock. Again: if you can consistently anticipate future information better than the average investor, you can consistently earn above average returns – even in an efficient market.

Why You Should Always Do What You’re Afraid To Do

Ralph Waldo Emerson said: ‘Always do what you are afraid to do.’ And this rule seems a reasonably good guide for self-improvement. Because it turns out that people are often afraid to do the things they are least familiar with. Whether is approaching a girl in a club, giving a speech to 50 people, or setting up a business: things make us feel anxious because we have little experience doing it. In such cases the anxiety often pushes you away from doing the thing, hence still leaving you clueless about what you will experience, or even further increasing your anxiety.

But there is something odd here: because the things that you are least familiar with provide you with the biggest opportunities to learn. After all: if you are not familiar with something, it means that you have little knowledge of it. It means that you are still at the start of the learning curve; that the ‘marginal utility per unit of experience’ is very high. Therefore, being afraid of something might be a damn good indicator that there is a lot of potential for you to learn about the thing. Hence it might be wise to always do what you are afraid to do.

This reasoning seems cogent, doesn’t it? But there is one problem with Emerson’s rule…it is not always true. There are cases in which fear should actually push you away from doing something – not pull you into doing something. Think about the fear of jumping of a building, or the fear of approaching a tiger. Given that you want to improve yourself, it seems unwise to jump of a building, or to be ripped to pieces by an angry tiger.

So the best we can do is to say that the rule is a heuristic: a guide in life, that points you – in most cases – to the areas in life where you can learn a lot. But how do you know in what cases you should act upon the rule, and in what cases you should realize that doing so might actually put you in danger? I think we have to distinguish between two kinds of fear here: socially conditioned fears and innate fears. The first are things such as being afraid to start a business or to make a move on a girl*: we have been told, or we have experienced at first hand, that such endeavours might cause emotional pain – even though they are not inherently dangerous. Innate fears, on the other hand, are things such as being afraid of tigers, which seems like a reasonable fear. Tigers are dangerous; despite your experiences with one. In other words: it seems that innate fears try to protect us from real threats, while socially conditioned fears don’t always do so.

Taking this into account, ‘Always do what you are afraid of’ is likely to make you learn a lot.

But what do you think?

*it might be true that socially conditioned fears are grounded in biology, hence being innate. If we take evolutionary psychology seriously, for example, it might be true that the fear to approach women is in fact innate. Hence there seems to be a continuum from innate to socially conditioned fears; not a categorical difference.