A N N U I T Y Analytics
When History and
Finance Go Wrong
BY BOB SEAWRIGHT
On a fine morning 100 sum- mers ago in Sarajevo, an au- tomobile driver ferrying the
Austro-Hungarian Archduke Franz
Ferdinand made a wrong turn off the
main street into a narrow passageway
and came to a stop directly in front of
a teenaged activist member of the Serbian terrorist organization Black Hand.
Gavrilo Princip drew his pistol and fired
twice. The archduke and his wife fell
dead. Within hours, World War I was
well on its way to seeming inevitable
(or at least necessary), all because of a
wrong turn. And the idea that history is
rational and sheds light on an intelligible
story, much less a story of inevitable
and inexorable advance, was also shot
dead, as dead as the archduke himself.
Austria invaded Serbia in response to
the assassination soon thereafter. Russia
had guaranteed protection for the Serbs
via treaty and duly responded. Germany,
also by treaty, was committed to support
Austria when Russia intervened. France
was bound to Russia by treaty, causing
Germany to invade neutral Belgium in
order to reach Paris by the shortest pos-
sible route. Great Britain then entered
the fray so as to support Belgium and, to
a lesser extent, France. From there, the
entire situation went completely to hell.
Alleged experts on both sides expected
a quick outcome. “Over by Christmas”
was the consensus view, even though the
expected prevailing parties remained
in dispute. Forecasters then were no
better than today’s iteration, obviously.
The “absolute neutrality” of the United
States lasted until the spring of 1917
when Germany’s unrestricted submarine
warfare policy caused too much damage
to U.S. interests to be ignored.
By 1919, after the war’s end, 10 million had died in addition to the archduke
and his wife even as the seeds of Nazism
and the Second World War were sown.
Western civilization, previously so full
of optimism and fairly broad prosperity,
had drawn itself into a very tight circle
and begun blasting away from very
close range for no very good reason.
The lead-up to World War I demon-
strates the planning fallacy (outlined
by Nobel laureate Daniel Kahneman in
his terrific book, Thinking, Fast and Slow)
writ large. In the same way that the
narrative fallacy constructs stories to © B