Green Lumber Fallacy: The Disconnect Between Academic Knowledge and Practical Wisdom

According to The Green Lumber Fallacy, what works in real world may not match our stories of why or how it works. Unimportant details and post-hoc narratives can often distract us into thinking we know the reasons for something when we really don’t.

Nassim Nicholas Taleb explains it in his famous book, Antifragile:

“In one of the rare noncharlatanic books in finance, descriptively called What I Learned Losing a Million Dollars, the protagonist makes a big discovery. He remarks that a fellow named Joe Siegel, one of the most successful traders in a commodity called “green lumber,” actually thought that it was lumber painted green (rather than freshly cut lumber, called green because it had not been dried). And he made it his profession to trade the stuff! Meanwhile the narrator was into grand intellectual theories and narratives of what caused the price of commodities to move, and went bust.”

“It is not just that the successful expert on lumber was ignorant of central matters like the designation “green.” He also knew things about lumber that nonexperts think are unimportant. People we call ignorant might not be ignorant.”

I had a similar experience. Two years back, during the sudden crypto boom, I attended a bunch of conferences where people talked about the blockchain, the bitcoin, and how to trade various coins and get rich. Many successful technologists gave talks who knew about the intricacies of the inner workings of a block, and then there were crypto traders who didn't know much about the nitty-gritty, but made killer bucks by trading them.

Taleb further explains:

“The fact is that predicting the order flow in lumber and the usual narrative had little to do with the details one would assume from the outside are important. People who do things in the field are not subjected to a set exam; they are selected in the most non-narrative manner—nice arguments don’t make much difference. Evolution does not rely on narratives, humans do. Evolution does not need a word for the colour blue.”

In other words, one doesn’t need to know everything about how something works to be able to use it, or more appropriately, to benefit from it. For example, you need not be aware of the history of an internal combustion engine to learn driving.

Knowledge is helpful, but there’s a stark difference between, what Aristotle calls practical wisdom (phronesis) and scientific knowledge (epistēmē).

Practical wisdom is rooted in action, and you can create different outcomes by taking various actions. Whereas scientific knowledge describes how reality is.

In Nichomachean Ethics, Aristotle writes:

“Since scientific knowledge involves demonstration, but there is no demonstration of things whose first principles are variable (such as decision making in reality), and since it is impossible to deliberate about things that are of necessity, practical wisdom can not be scientific knowledge nor art (technē, a technique, in the sense of making things); not science because that which can be done is capable of being otherwise, not art because action and making are different kinds of things. The remaining alternative, then, is that it is a true and reasoned state of capacity to act.”

Taleb sums it up by giving it a name:

“So let us call the green lumber fallacy the situation in which one mistakes a source of necessary knowledge—the greenness of lumber—for another, less visible from the outside, less tractable, less narratable.”

The real causative factors of success are often hidden. We think that knowing the intricacies of green lumber are more important than keeping an eye on the order flow. I have sat in too many meetings where people have established facts which everyone in the room agrees with, but facts that are completely irrelevant to any action that can be taken. They are TBU (True But Unless) facts. The greenness of the lumber is one such true but useless fact, yet it isn’t very obvious to an outsider.

Next time, refrain from believing in people who appear to exude great knowledge. Analysts and journalists love narratives that neatly explain for example, a company’s loss of form, but they are no executives. Just because someone has an MBA doesn’t mean they have the required knowledge run a business. Also, think twice before judging somebody to be a lucky fool. Erudition that is useless in real world has very little value for an entrepreneur. Doers have no place for armchair philosophy.

Lee Kuan Yew, the father of modern Singapore has a simple idea about using theory and philosophy. It’s a simple question, Does it work?

“My life is not guided by philosophy or theories. I get things done and leave others to extract the principles from my successful solutions. I do not work on a theory. Instead, I ask: what will make this work? If, after a series of solutions, I find that a certain approach worked, then I try to find out what was the principle behind the solution. So Plato, Aristotle, Socrates, I am not guided by them…I am interested in what works…Presented with the difficulty or major problem or an assortment of conflicting facts, I review what alternatives I have if my proposed solution does not work. I choose a solution which offers a higher probability of success, but if it fails, I have some other way. Never a dead end.”

The Green Lumber fallacy refers to the disconnect between academic knowledge and practical wisdom. Between backward narratives and actual results. Between intellectual masturbation and real world action. A related analogy from Nassim Taleb himself is that you don’t lecture birds on how to fly. Birds learn to fly by doing, by trial and error. They do not go to flight school and listen to theories on aerodynamics.