Conviction Narrative Theory: A theory of choice under radical uncertainty

Hello and welcome everybody. It is October 18th, 2023, and we're here in Active Inference Guest Stream 59.1 with David Tuckett on Conviction Narrative Theory. So David, thank you for joining very much. Looking forward to this presentation and discussion. So to you. So thank you very much. Just perhaps a bit of a useful background is that I'm someone who started out as an economist in the days when economists were taught more than they are now. That is to say also sociology, even a bit of politics. And then I became a medical sociologist while at the same time becoming a psychoanalyst, which I won't attempt to explain, but is obviously different. And then in more recent years, I've tried to put those things together with going back to economics and trying to understand particularly financial markets, but more generally decision making and how it works are sort of on the big scale. So conviction narrative theory is the outcome of this kind of exercise. I suppose it's it most immediately started from the fact that I began a series of interviews, but perhaps I'll just come to that in a minute. So what is conviction narrative theory? The purpose of it is that it tries to characterize the social and informational context in which decision making occurs. And secondly, the cognitive and affective processes governing it. So it's about how people actually take decisions, not how they ought to. So this book here, Minding the Markets, was a book I published in 2011 and was the outcome of 52 interviews with fund managers. Those are people who worked for some of the large firms like Goldman Sachs or others and were responsible for investing at least $500,000 into the world stock market. Some of them invested as much as 20 billion. So they range. And when I was talking to them, I became aware that they were very intelligent people. They often had up to 20 people supporting them or also very intelligent and able. They had lots and lots of computer power and programs and analytic schemes and so forth. But when it came down to it, what they had to do was to make a judgment and they had to be convinced about that judgment. And not only that, they had to hold to that judgment over time, which is something that's not often discussed in decision making. So if you decide to sell or buy or even hold any kind of investment, that's a decision you make at point one. But usually it's not going to pay off to you or the whole idea is it won't pay off for three, five, ten years. And so you've got to be willing to stick with your decision for quite a long period of time. Or if you decide you've got it wrong to back out. And all of this requires what I realized requires what I call conviction. So that's the basis of where this theory started from. So real world decision making, which is what we're trying to understand here, is best understood by example. For example, the one I've just given, how to manage an investment portfolio, but also a question like what level of reserves does a bank need to be safe? A decision like should you expand your company into a new product or new technology? Or how much funding should a university or a company allocate to cybersecurity threats? What resilience standards should be adopted by government regulation? Precisely what should we prepare to do to prevent catastrophic climate change? How should we anticipate and prevent future potential financial crisis? Or how do you level up regions of your country or the world which are currently unequal? These are all pretty big, big questions. And I would argue all of them involve uncertainty. So they're massively consequential choices. That's the first point. The data is always going to be incomplete. The options are ambiguous. And the future, that is what you know has happened so far, not only may not resemble the past, but in our modern world, which is changing rapidly, is actually unlikely to resemble the past. Or you could put it another way, which bits of the past will it…