October 6, 2016
New York Times
Re: September 15 New York Times article, “At BlackRock, a Wall Street Rock Star’s $5 Trillion Comeback”
As an investment professional, past adjunct faculty of finance, and international speaker on human behavior, I am compelled to comment on your article published September 15 (also the cover story of the printed Business section on September 18). The story paints Aladdin – BlackRock’s supercomputer – as not only the envy of an entire industry but as software with oracle powers. The column begins by building a pedestal for BlackRock CEO Laurence Fink and Aladdin, and continues by decorating the “king’s” stand with praise in the form of hubris and pomposity, going so far as to call the computer system and its many tentacles, “all-seeing.” Ironically, this holier-than-thou mindset in finance is one that itself led to the Great Recession which then catapulted Fink and BlackRock to the top of the industry.
Human emotion is at best a moving target, and in reality is more complex than any man-made computer system can anticipate. Neurologically we are only scratching the surface insofar as comprehending consciousness, so your notion that a computer system can predict risk and determine “how securities will respond to certain situations – such as a sudden rise in interest rates or what happens in the event of a political surprise,” is a complete fallacy and the origin of the very overconfidence which leads to deep market corrections. Instead of your touting Aladdin and Fink, you should recognize that human decision making machinery is intricate far beyond what anyone or any system can predict, and every decision we make, from what to have for breakfast to which stocks to buy, involves (incalculable) emotion.
Neuroscience and behavioral finance show us that human behavior is unpredictable. Sophisticated elements such as heuristics and choice under uncertainty, as well as simple elements such as physical health, mood, and even how well we slept the night before, can all impact our decision making, including how we react to a sudden rise in interest rates or a political surprise. It is literally not possible to predict the myriad factors that impact our decisions; the idea that any computer system can do so is not only unscientific but plain wrong, and your article only exacerbates said misconception by more or less publicizing Fink and Aladdin as the “Second Coming.” To the point, the major afflictions which build in financial markets do not come from the actions of investors which Aladdin attempts to quantify. Rather, systemic issues in financial markets arise when schemes like Aladdin and people like Fink – aided by your reporting – claim invincibility. Myopic overconfidence in any form leads to excess risk taking, and investors ultimately pay the price.
Though we would like our investment programs wrapped elegantly and tied in a neat bow, markets are a chaotic representation of our emotions and consciousness is complicated beyond our grasp. Your own newspaper has published numerous columns on human behavior and the aforementioned inability of science to fully comprehend the depths of our emotions and biases. As recently as yesterday (October 5), your paper – in publishing an unrelated but thorough rebuttal of the interchangeability of “implicit bias” and “racism” – provided significant backdrop for the unpredictability of our subconscious as well as the gaps in scientific knowledge relative to our decision making machinery. Indeed, one need not look far to find evidence that the idea of Aladdin’s ability to predict markets, and therefore human behavior, is a ridiculous one. Nonetheless, it seems you are hell-bent on writing about that which is exciting rather than that which is both true and progressive, and your article only adds to the corrosive illusion that finance and market movements are understandable and predictable. (Even your photographs of BlackRock’s Fink are over-dramatized in an attempt to build his and Aladdin’s mystique.)
To reiterate, this is the very problem that plagues markets and lies at the belly of most major financial bubbles; pedestal building and suggesting any one person, process, or program as supreme is the cause of excess risk-taking with implications both in and outside of finance. What ever happened to humility and doubt? Perhaps when you stop propagating these foolish (and dangerous) ideas such and Fink and Aladdin’s almighty insight, markets can assume their actual, albeit simple purpose: providing capital to businesses in return for share of profit.
Finance replicates life, and when we buy into your idea that someone has solved the riddle of markets, we again set ourselves up for failure. Our lack of control (due to the fundamental presence of human emotion) is difficult for us to admit. But the notion that anyone or anything is smarter than the organized chaos of financial markets is both unscientific and downright destructive. And while such feigned control might sell papers while providing investors with a fleeting sense of comfort, Aladdin and Fink and your column are only making matters worse in presenting a reality different than the truth.