Phil Fernbach
speaker
299 appearances
2 recordings
1 series
first heard May 2025
last heard 20 Oct
Phil Fernbach’s voice in public audio — every appearance, attributed to the second.
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recordings per month · last 12 monthsRecordings per month over the last 12 months — 1 in all, peaking in Oct 2025 with 1.
Appearances
And so what happened was when the price of real estate in the United States started going down, these products, which were tied to the value of real estate and like the default probabilities on mortgages, they crashed in value.
And there was this huge amount of risk in our financial system because these products had entered into all these different areas and they were highly represented in all these different areas.
And all of a sudden, kind of everybody was caught by surprise that the pension fund was losing a huge amount of its value because it had exposure to these very risky things because people didn't realize that the risk was there.
That's absolutely right. And I think it happens at more than one level. So if you think about a pension fund manager who knows what a derivative is, but isn't a super expert in a derivative, he's relying on the people who do the analysis of the derivatives to kind of think, oh, this is potentially like a good investment vehicle for my portfolio. He's not thinking in terms
super careful detail about what the risk profile is of that instrument. And maybe he or she should be, but they obviously didn't. But it also occurs at another level, which is the person who actually is the super expert on the derivative, even that person, it turned out, didn't understand completely how these things were going to behave.
So the big banks who were developing these instruments and selling them they would have a mathematical model that would determine exactly how these things would behave. The problem is that those mathematical models work really well most of the time, like an airplane that's highly automated, but they actually break down in very unusual situations, a black swan event, so to speak.
And that's exactly what happened. So the models failed. And so the super experts on derivatives even they completely misunderstood the amount of risk that was present in these products. So it was across the entire financial system that there was these sort of miscalibrations in understanding.
And there was this cascade effect that started with, you know, some slight decreases in the price of housing and then just cascaded into this massive crash and devastation that not only affected the United States, but affected... countries all over the world because the entire global system is so connected nowadays.
That is a paradox, and that is the paradox at the heart of humankind, I think. On the one hand, we have visited the moon and created incredible artificial intelligence and all these other sort of almost magical abilities. On the other hand, everybody knows that people can engage in behavior that's incredibly ignorant and extreme and foolish.
And we've all done it ourselves and we've all seen it in others.
The illusion of knowledge is the idea that we think that we understand the world in much greater detail than we actually do. In cognitive science, this is sometimes called the illusion of explanatory depth. There was great research done by a psychologist at Yale named Frank Kyle and his colleagues in the 1990s. And that's precisely what they were interested in.
How well do people understand how everyday objects work, things like toilets or ballpoint pens or zippers? And in these studies, what they asked people to do was to first just give a sort of impression of how well they understand things. And what's fun about this experiment is that your listeners can actually do this experiment on themselves right now. So think about it.
How well do you understand how a toilet works? And if you're like most people, you're kind of nodding your head right now and saying, well, I have a decent understanding of how a toilet works. You think that somewhere in your mind is something like an annotated plumbing diagram that you could tell us about. But here's the trick.
In the next part of the experiment, what I'm going to do is I'm going to ask you to explain to me in detail exactly how it works. And when I do that, something really remarkable happens. People reach inside and they realize they have just about nothing to say. It turns out that we tend to know remarkably little about the way that the world works.
And yet, that initial impression we have is that we do understand in a lot of depth. And that's what Kyle called the illusion of explanatory depth and is sometimes referred to more simply as an illusion of knowledge or an illusion of understanding.
So that's actually most of the time pretty much all you need to know about how a toilet works until the toilet breaks and you have to fix it. And then you realize, actually, there's a lot more going on.
So the most popular flush toilet in North America is the siphoning toilet. And by the way, this is a really ingenious mechanism that was created. Its most important components are a tank, a bowl, and a trapway. The trapway is usually S or U-shaped, and it curves up higher than the outlet of the bowl before descending into the drain pipe that eventually feeds the sewer.
The tank is initially full of water, and when the toilet is flushed, the water flows from the tank quickly into the bowl, raising the water level above the highest curve of the trapway. This purges the trapway of air, filling it with water. As soon as the trapway fills, the magic occurs.
A siphon effect is created that sucks the water out of the bowl and sends it through the trapway down the drain. It's the same siphon action that you can use to steal gasoline out of a car by placing one end in the tank and sucking on the other end.
Well, I think we should test that with a plumber, not with me. But I think you did a pretty good job.
Showing 221–240 of 299 · page 12 of 15
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