Risk, Uncertainty, and Black Swans: Why Soviet Socialism Was Forever Until It Was No More 

Talk given at the Annual Berkeley-Stanford Conference

UC Berkeley, March 3, 2017

A few words to begin with about the title.

Many of you probably recognize the reference to Alexei’s terrific and influential book about late socialism, “Everything Was Forever Until It Was No More.” The book is framed around a particular observation, which is that in the late Soviet period Soviet citizens assumed that Soviet socialism would last forever, but after the fact they looked back and saw all sorts of reasons why it had to collapse.

It wasn’t just Soviet citizens who felt that way, however – outside observers did as well. Indeed there has been a great deal of criticism of academic specialists, and perhaps more importantly of the U.S. and Western intelligence communities, for having assumed that “everything was forever” and for failing to predict the collapse of communism in the USSR and Eastern Europe. In fact, just yesterday I read a piece in Foreign Policy claiming that Kremlinologists are “ haunted” by their “fabled inability to foresee one of the most significant geopolitical events of the 20th century — the collapse of communism and the Soviet Union.”

My argument that if indeed they are haunted – which I don’t think is true, at least I’m not – they shouldn’t be. On the contrary, the early assumption of both Soviet citizens and outside observers that “everything was forever” was entirely reasonable, and ex-post claims that what happened was predictable are not only wrong but reflect a typical cognitive bias highlighted in some of the research in psychology and behavioral economics on cognition and irrationality in decision-making.

In short, my argument is that the collapse of the Soviet Union shares at least one thing in common with Donald Trump’s election as president, which is that it was a highly improbable outcome with enormous consequences. Which is to say, it was a black swan.

A few general points before diving in. Continue reading →