As any anthropologist will tell you, human beings love stories and narratives, because they help us make sense of the world and our place within it.
Over recent years, economics has become increasingly focused on mathematical models, often to the detriment of comprehensibility; with charges being levelled by some that the approach is designed to obfuscate and to hide the fallibility of an underlying hypothesis, because the riposte to criticism is “But you clearly don’t understand either economics or mathematics.”
Fortunately, there are now signs that economists have begun to realize that, shocking as it may seem, it actually helps if people at least understand, even if they do not subscribe to a particular conclusion or forecast. Comprehension leads to dialogue.
Of course, this begs the question about the extent to which either “number-crunching” or “storytelling” should be the predominant mode of approach to the issues inherent in finance and economics. We have all seen the consequences of flawed modelling and “marking-to-myth”, as well as how extrapolating trends without introducing a significant dose of common sense can lead to absurd outcomes and flawed decision-making. On the other hand, a narrative that is not grounded at least to some extent in an appropriate probabilistic or Bayesian framework can just as easily veer off into the realms of unchecked fantasy.
In reality, to be able to make, and have key constituencies subscribe to one’s views and recommendations one has to be able to blend both strands of approach. Most individuals tend to be biased towards one or the other in terms of aptitudes, interests and capabilities; so a key factor in building successful and effective teams, including in (re)insurance underwriting and risk management, is to ensure that it contains individuals with the requisite and complementary skills.
While we suppose in this age it is conceivable that a new financial model could “go viral” and become a term of art, it is likely that its audience will be confined to a relatively small cadre of specialists, rather than the public at large.
In the world of finance and investment, narratives and how people react to them are crucial. One of the strengths, so-to-speak, of Berkshire Hathaway (apart from its legendary financial capacity) is the ability of both Warren Buffett and Charlie Munger to deliver and project a consistent, credible narrative over what now amounts to generations. One can argue that the Sage of Omaha is now entering the realm of myth and legend, but the effectiveness of the approach speaks for itself.
At Awbury, because our business is based fundamentally upon our ability to create often complex, value-added solutions for our clients, and to ensure that our partners understand and subscribe to what we are trying to achieve as we continue to expand our franchise, the construction and combination of both financial models, and solid and credible narratives are core skills. As a niche and specialist business, we believe that this is what differentiates us from the world of the commoditized, “narrativeless”, increasingly low-margin business lines prevalent in much of (re)insurance.
We would be more than happy to tell you a (true!) story…
The Awbury Team