John Maynard Keynes thought professional money managers were playing something akin to an intricate guessing game in which the competitors have to pick out the six prettiest faces from 100 photographs that they think are the likeliest to catch the fancy of the other competitors, all of whom are looking at the problem in the same way.
Much of Keynes’s lasting popularity comes from his use of metaphors. Metaphors are the basic building blocks of how we think and communicate with one another, a way of reducing complex concepts into something that is easier to grasp. We make sense of the world by seeing how one part of it relates to and is reflected in another.
What better way to explain the market’s behaviour, for example, than by comparing it to bipolar disorder?
As everything around us grows more complex, so does the need for metaphors. A bank’s business could at one time be understood by anyone able to add, subtract, multiply and divide. Nowadays it requires storytelling. As director Adam McKay does in the film adaptation of Michael Lewis’s book, The Big Short, when Anthony Bourdain compares collateralised debt obligations (CDOs) to the stews chefs make with the seafood they didn’t use the day before. “It’s not old fish,” says Bourdain. “It’s a whole new thing.”
We learn how these CDOs were not bad at first but turned bad when they started spawning synthetic CDOs, through the film’s blackjack table metaphor where people bet on the players, and then bet on the outcomes of those bets instead of the cards being dealt.
Not only are metaphors useful in explaining how things work, they are an easy way to persuade. When Warren Buffett describes complex financial instruments as “financial weapons of mass destruction” it says nothing about how they work but leaves little doubt that they are best avoided.
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