It has been seven years and a few days more now since Bernard Madoff acknowledged to authorities that “there is no innocent explanation” for the story they had just heard from his sons.
It has been 15 and a half years since Harry Markopoulos ran the numbers regarding Madoff’s performance and concluded that, well … that there was indeed no innocent explanation for them.
One of the few insights into the whole matter that hasn’t yet been beaten to death by repetition, that deserves a re-airing, is an idea advanced a couple of years ago by Boudewijn de Bruin, of the University of Groningen, in The Netherlands. De Bruin wrote of “epistemically virtuous risk management.” The people and institutions that invested with the renowned and respected Mr. Madoff should have exercised some of that!
Usually, in philosophy as an academic enterprise, “ethics” is one field of inquiry and “epistemology” is another. The expression “epistemic virtue” makes little sense. Epistemology speaks to how we know something to be true, or why we suspect it to be false. In the broadest of terms, this involves the debate between “foundationalist” views on the one hand and “coherentist” views on the other. Can we build a pyramid of knowledge starting from a broad and wide bottom layer? And, if so, of what does that layer consist? Or is the pyramid metaphor wrong-headed?
Perhaps we should be concerned about creating a raft of knowledge to float about safely within a sea of doubt. If the raft is our ruling metaphor, we need to be concerned chiefly that the different logs stick together, allowing us enough of a surface on which to live our lives. The pyramid and the raft respectively stand, then, for foundationalism and coherentism.
Ethics? It speaks to a different range of questions: to how we should live our lives, to how we should deal with one another and other living things. Some schools of ethical thoughts focus on our duty, others on the achievements we ought to pursue. These are the deontological and the teleological view, respectively. A third theory, one with ancient roots but with only a small band of contemporary exponents, focuses on the virtues that we ought to cultivate, the type of character we ought to be. The premise isn’t just that the virtuous character will do the right thing, but that the right thing is best defined as that which the virtuous character does.
De Bruin, in speaking of “epistemically virtuous risk management” is cross-fertilizing three fields: epistemology, substantive ethics, and financial economics. What virtues help us know when the money it is our duty to manage safely is indeed safe?
Markopoulos, portrayed above, is the paradigmatic character for this study, the bearer of the necessary virtues. De Bruin writes that Markopoulos was “intellectual courageous,” that is, he was a person who was “eager to subject [his] belief to thorough scrutiny and to continue [his] inquiry irrespective of potential resistance or disdain from others.”
He was also epistemically temperate. Temperate people “are skeptical enough to take with a grain of salt what salespeople tell them, for instance, but they are not so skeptical as never to believe anyone.”
Many other analysts with a duty of due diligence started down the same road as did Markopoulos, but they usually turned home quickly, unwilling to follow where the trail led them. “The difference between these analysts and Markopoulos is one of epistemic virtue.”
The lesson is that if one has risk management responsibilities, doing one’s job is not just a matter of doing one’s job. It is a matter of character. Of letting the world know that your parents raised you properly, with your share of each of the classic virtues.
To return to the strictly epistemological debate for a second: perhaps knowledge is neither a raft nor a pyramid. Perhaps it’s a crossword puzzle. The puzzle grid has a foundation of sorts (the questions/clues printed along the side of the grid have objectively valid answers), but the foundation is not enough. The clues taken in themselves will almost always be ambiguous (or the puzzle is too easy). The words with which we fill in the grid have to fit together, the across answers have to allow for the down answers. The shape of the grid itself is the ultimate clue, the meta-clue.
But of course as Madoff’s victims will attest, financial due diligence is a deadly serious sort of puzzle.