For most people poetry and finance reflect two intellectual extremes. The former represents the evocative use of symbols and aesthetics to express layers of meaning. The latter represents the scientific use of symbols and technology to express convergence of meaning.
In this post I argue that financial decision-makers have a lot to learn from poets. In particular, investors can improve their decision-making by drawing attention to the layers of meaning and the problems and opportunities of interpretation in finance.
Poetry is celebrated for its layers of meaning and the challenges it poses for interpretation. As with any discipline, there are competing schools of thought about what counts as knowledge.
For some literary scholars, interpretation problems can be resolved through the common sense approach of deferring to the author’s intentions. So when faced with with a confusing and abstract verse, students of poetry are advised to think about the author’s context and intention in order to make sense of the prose. There is only one ‘right’ way to interpret the poem.
Other scholars reject the author-as-authority thesis. In particular, the new criticism tradition emphasizes the importance of focusing on the text and ignoring historical context and the intentions of the author. This view invites a significant degree of scepticism into poetry reading. What one verse means to you may mean something very different to me, and that is ok. There are several ‘right’ ways to interpret the poem.
Somewhere in between the common sense view and the sceptical view lies ambiguity. Ambiguity allows the poet to elicit the reader’s imagination and to communicate complex ideas and tacit knowledge. Ambiguity in a poem is not meant to be resolved. Nevertheless, “ambiguity is not satisfying in itself, nor is it considered as a device on its own, a thing to be attempted. It must in each case arise from and be justified by the peculiar requirements of the situation”.[1] There is no right answer, but this does not mean that everyone’s interpretation is right. There are limits to what counts as a reasonable interpretation, but there is still room for different interpretations.
Consider the famous poem by Robert Frost, the Road Not Taken. The poem is most often interpreted as a reflection of our desire to attribute meaning to our actions. Frost is celebrating non-conformist values associated with forging one’s own path.
Two roads diverged in a wood, and I –
I took the one less traveled by,
And that made all the difference.
While uncertain about what lies ahead on both paths, the traveller is guided to the one right answer by appealing to the value of taking the path less travelled.
A closer and less appreciated reading of the poem reveals there was no right answer. The evidence for which path was least travelled was ambiguous. Consider the verses below.
And both that morning equally lay
In leaves no step had trodden black.
Though as for that the passing there
Had worn them really about the same,
The traveller had to invent a reason to justify her choice to herself and to others after her choice was made. This second interpretation of the poem evokes a dramatically different sentiment than the first interpretation. Rather than a celebration of non-conformity, this second interpretation evokes a godless sense of having to choose without some underlying value to guide us. The use of ambiguity over the relative worness of the two roads allows the poet to communicate this deeper layer of meaning; that is, the irreconcilable conflict between our desire to attribute meaning to our actions and our sheer lack of ability to do so.
A student of finance might be tempted to suggest the traveller could improve her position of uncertainty to one of risk by gathering more information. The traveller might survey other travellers to learn about the relative worness of the two roads. But reducing uncertainty is not the same as reducing ambiguity (indeterminacy). This new information might make the traveller less uncertain about how worn the two roads are. But the new information would still not help the traveller determine which road to choose. This is because the traveller lacks a guiding value for choosing a road in first instance.
It is only after the traveller is recounting her tale to friends that the value of non-conformity is adopted. By attempting to resolve uncertainty and ambiguity (indeterminacy) into one, we overlook the confused state of mind that Frost is trying to convey. That is, by trying to resolve ambiguity, we overlook this interpretation of the poem. The question of which road to choose is an ambiguous one; that is, there is no right answer. But we still must choose. And that is the point.
Questions of this nature fall into a category that conventional finance theory has deemed irrelevant. That is, a question that has no right answer is not worthy of scientific inquiry.[2] For example, what does it mean to be an ethical investor in public equities? What distinguishes a long-term investment from a short-term investment? How can investors manage risks of climate change when fossil fuels are deeply integrated into modern life? How do investors distinguish an impact investment from a conventional investment when the counterfactual (e.g., not making the investment) cannot ever be known?
These questions have no right answers. But these are precisely the type of questions that institutional investors are confronted with in increasingly complex and interdependent global financial markets. It is only by staying with the indeterminacy – by acknowledging the layers of meaning – that investors can make sense of these questions and chart a meaningful way forward.
[1] William Emspon (1947:235) Seven Types of Ambiguity, New Directions: New York.
[2] Fraser Sampson, G. (2014) The Pillars of Finance. Palgrave.
The Great Divide 