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Keeper’s Blog- Error Date March 23rd

My fellow errorists,

it is with great delight that I can now begin these blogs with the address “my fellow errorists”. The Library has now been open for three weeks and already we have almost one hundred registered readers. I am very aware that many of you live many miles, sometimes thousands of miles, away from the Library itself. We do hope that you can make it to Edinburgh one day but we also plan to improve our online offering to benefit all our readers.

At this stage we can offer our fully searchable catalogue online and this will grow steadily as the months and years continue. Readers looking for material to research specific subjects in economic and financial history will hopefully find the catalogue a useful tool to identify appropriate material. Our aim is to offer access to as much digitalized content as is possible within the limits of copyright and our budget. When we get to that stage this will further enhance the benefits of readership for those who will find it difficult to visit the Library in Edinburgh.

A library is a connection of books and not a collection of books. Our readers can play a key role in increasing the connections between our books and thus the value of the Library. Already we have tags on each book (such as psychology, United Kingdom, regulation) and these help direct readers to materials on these specific subject tags.

By adding keywords and then perhaps a review to each book the usefulness of the search function will further improve. If I add the keywords — subprime, 2008, 2009, Bear Stearns, Lehman Brothers — to the review panel for Michael Lewis’s The Big Short, a search for any of these words will direct readers to that excellent book. If we were able to add keywords for every book in our catalogue, the search function would direct readers to very subject-specific reading materials.
All our readers can contribute to this process by simply choosing books from our catalogue and e-mailing keywords or perhaps a review to the Keeper (keeper@libraryofmistakes.com). The Keeper will add your keywords and any review to the appropriate book and, by working together, our collection of books becomes a connection of books.

This week in the United Kingdom there has been a revolution in the savings system. For the first time in the modern age those with private pension pots will be free to choose their savings vehicle of choice in retirement, rather than be compelled to purchase an annuity.

This is a very welcome boost to personal responsibility in our society but clearly one not without some dangers. Most people are not financially literate and are thus prey to those who can sell them products with inappropriate risk/reward characteristics and, invariably, with too high a fee. This means that part and parcel of the savings revolution will have to be the provision of basic financial education to equip those retiring to make informed choices. The British government recognizes this need and part of the reform will be the provision of free financial advice for those retiring. The Library of Mistakes offers a high quality additional resource for those newly enfranchised savers seeking to understand the risk/reward characteristics of the investments which will be right for them. And who better than Einstein to explain the role of the Library of Mistakes in this new era:

“If I had an hour to solve a problem and my life depended on it, I would use the first 55 minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than five minutes.”

At the Library of Mistakes we cannot promise readers that we have the right answers to questions which clearly involve forecasting future returns. However, we can promise that some time spent perusing the Library and some time spent reading financial history will significantly help you to ask the right questions about the future of financial returns.

So, it’s your responsibility now and what better place to start exercising that responsibility than at the Library of Mistakes. Come along and join us in helping to change the world “one mistake at a time”.

Keeper’s Blog Error Date February 27th 2014

Why does the world need a Library of Mistakes? It needs A Library of Mistakes because smart people keep doing stupid things. There are of course very good reasons why they do stupid things. Making any plan for the future involves taking risks. Anyone trying to plan for the future will face both the known unknowns and also the unknown unknowns upon which Donald Rumsfeld once so eloquently opined. It is because all human planning faces these twin unknowns that mistakes are inevitable. At the Library of Mistakes we can see the beauty in mistakes. Mistakes can sometimes be serendipitous, but even when they are not, their study still has value as human progress is based upon learning from mistakes. The more we know about why smart people do stupid things, the fewer stupid things we might do. The Library of Mistakes provides a resource for the study of such mistakes as we seek to fulfil our moto- Mundum mutatu errore singillatim (Changing The World One Mistake At A Time)

The Library of Mistakes focuses primarily on the mistakes made in the sphere of business and finance, where all attempts to secure future returns involve battling with Rumsfeld’s twin unknowns. But it is not just in the field of finance where these foes are encountered. If Von Moltke was right when he said ‘no battle plan survives contact with the enemy’, then the mistakes are also inevitable in the military sphere. Indeed what more eloquent exposition of the inevitability of mistakes is there than that provided by Mike Tyson- ‘everyone has a plan until they get punched in the mouth.’ So he who plans errs. However at the Library of Mistakes we wonder whether he who plans should always err in the same way? Surely the generation that can invent the ipad is capable of inventing its own mistakes? So while we cannot hope or want to eradicate mistakes, we can hope to usher some mistakes down the path towards extinction.

The definition of madness, according to Einstein, was to ‘do the same thing over and over again and expect different results’. While scientists quickly change their experiments in search of different results, investors it seems are prepared to repeat the same experiments and expect different results. At The Library of Mistakes, readers can study the financial experiments of the past which ended in loss and disaster. Indeed the Library has a broad collection of books on financial and business history, and readers can study success as well as failure. While we like to refer to ourselves at the Library as a small ‘errorist cell,’ the truth is we study financial history to understand success and failure alike. For without studying and understanding how things have worked, how can we ever hope to understand how they will work?

In recent decades the mathematicians have offered us some seeming certainties about the known unknowns and the unknown unknowns..Such seeming certainties have been misused to justify higher levels of risk-taking, which have often been little more than repeating the same old mistakes. At The Library of Mistakes we are seeking to redress the balance in financial understanding away from such seeming certainties. Our focus is not on how things might work in a world of efficiency, but of the recorded uncertainty of how things work in the real world. Uncertainty is just more untidy than mathematical explanations allow, and it is time to accept the subjective nature of the pursuit, but to study untidiness anyway.

When Daniel Kahneman won the Riksbank Prize in Economic Sciences in 2002 the citation read as follows-

‘For having integrated insights from psychological research into economic science especially concerning human judgement and decision making under uncertainty.’

A study of financial history is a study of ‘human judgement and decision making under uncertainty.’ The Library of Mistakes opened on February 27th 2014. If you would like to join our errorist cell, please register above, and help in ‘Changing The World One Mistake At A Time.’