I am set to enroll in a course entitled “Readings in Grand Strategy” next semester. The course description features many of the “greats” of strategy: Bismarck, Clausewitz, Philip II, etc. I began to wonder: as America struggles to find the way forward, are we searching for a great man or many good men?

I am fascinated by the knowledge problem in strategy. It’s the same problem which faces societies as they struggle to create an economic order. In “The Use of Knowledge in Society,” Friedrich Hayek wrote brilliantly on this issue,

“The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess.”

Knowledge within an organization (or society) is decentralized. If America wants to make the “best” grand strategy, it has to somehow utilize all the dispersed bits of knowledge. Yet, we have an overwhelming amount of knowledge, which only serves to swamp decision-makers. For example, 50,000 intelligence products are created every year, to which Thomas Fingar, former DNI deputy director for analysis, concedes, “There can’t possibly be a market for.”

How do we aggregate the sum knowledge at our disposal? I would submit one brilliant mind cannot do this as well as many good minds. George Kennan’s “Long Telegraph” on the Soviet Union is an excellent example– one brilliant mind dominated policy discussion. Instead of asking one super-expert about the USSR’s intentions, we could have bet on it.

What if we were to have a large pool of experts and ask them to wager on a series of questions? One example, “In 5 years or less, will Russia have another armed conflict with Georgia?” The experts would then use virtual money to gamble on the outcome. It’s called a prediction market and they’re eerily accurate at forecasting. By tapping into the power of many minds, we can detect bits of information which would have previously gone unnoticed.

In many instances, the prediction market uses prices to represent probablilties. For example, if a Russian invasion of Georgia in the next five years were selling at $.20, then the market is forecasting a 20% likelihood of the invasion occuring.

Private companies already use them. Google found they gave “decisive, informative predictions” on “product launch dates, new office openings, and many other things of strategic importance to Google.”

It Works!

It Works!

Posted by Jeffrey Withington in Hard Power, Homeland Security, Navy
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  • Abe

    Out of curiosity, what is the reading list?

    Also, if I recall correctly, in ‘Blind Man’s Bluff’, when searching for the Scorpion the probability of the hunch was used (experts traded bottles of scotch to determine what direction the sub was heading, what angle, etc). Its pretty fascinating to read about.

  • jwithington

    Yep, I believe that fell under the domain of “operations research,” using mathematical modeling to describe real events. Very cool stuff but the challenge is to balance it against becoming the whiz kids of the 1960s DoD>

    As to the course readings:
    “The course will focus expressly on relating parts to the whole in whatever individuals, institutions, and nation-states seek to accomplish. Readings, which are many, will include Thucydides, Polybius, Hobbes, Clausewitz, and a slew of contemporary theorists, as well as carefully selected case studies, such as the strategic policies of Philip II, Bismarck, and the Cold War. Outside speakers/instructors will include the past and current directors of strategy for the Joint Staff and Office of the Secretary of Defense, as well as historians and commentators.”

  • Gordon Levine

    Many years ago, I read a book CREATING STRATEGIC VISION: Long-Range Planning for National Security, 1987, Defense University Press, with chapters by Perry M. Smith, Jerrold P. Allen, John H. Stewart II and F Douglas Whitehouse.
    The chapter by Mr. Stewart discusses a technique called the Delphi Technique, in which anonymous experts make their predictions, then the list is sent around for “voting” and the predictions are refined and voted upon each time anonymously to come up with a “prediction”.

    One tricky thing about the “facts” known is how to weight both the reliability and pertinence of each bit of data.

  • RickWilmes

    The best grand strategy that the United States needs is proper defense of individual rights and property. The only sucessful strategy that allows that to happen is capitalism. Any attempt at centralized planning is a step towards statism. Once the road to statism is begun the bet is on when will the country(Soviet Union is an example) the country’s economy will fail.

    A note concerning Hayek. Hayek is from the Austrian school of economics. Concerning price theory, I would be interested to know if the class will discuss Carl Menger’s and Ludwig von Mises’s views on prices. My reason for asking is because their views as opposed to Hayek’s, are closer to reality which means they are closer to the truth.

  • jwithington

    Thanks for reminding me of the Delphi Technique. I read about it in “Infotopia” by Cass Sunstein, a great book to make you rethink how groups reach decisions.

    During a discussion about knowledge in society, a separate professor guided me to Hayek’s essay. Great read!

  • RickWilmes


    I found the essay on the Internet last night and read it this morning. Concerning knowledge in a society there are several issues that need to be understood.

    1) Society is a collection of individuals.

    2) Individuals acquire knowledge not society. How an individual acquires knowledge falls under the branch of philosophy known as epistemology. Basically there are three schools of thought concerning how man acquires knowledge. They are intrincism, subjectivism and objectivism.

    Upon reading Hayek’s essay it is clear to me that he has fallen victim to what is known as the analytic-synthetic dichotomy, a theory Kant has perpetrated on the world with disasorous results.

    Incidentally, Hayek wrote the introduction to Carl Menger’s ‘Principles of Economics.’. Concerning price theory and how it has evolved, with Hayek and the Austrian in mind, I highly recommend Menger’s book.

    Concerning the subject about the analytic-synthetic dichotomy, I recommend Dr. Leonard Peikoff’s essay an the subject.

  • Chuck Hill

    Let’s try in on the blog. If jwithington is willing to moderate.

    Proposition: “Israel will attack Iran to take out it’s uranium enrichment facilities by the end of 2010.”

    I don’t fully understand how “price” is derived, so an example might be good.

  • jwithington

    Unfortunately, I don’t have the resources or experience to set up a prediction market at that moment. It would really cool to bet on naval events, however! The Iowa Election Market places bets on presidential election outcomes and for the past few years have been more accurate at predicting the final popular vote than ~75% of all polls. You can read more about it here: http://www.biz.uiowa.edu/iem/markets/pr_Pres08_WTA.html

    I am contending that society is composed of individuals. These individuals each contain information unique to their time and place. If society could meaningfully aggregate this knowledge, they could make better informed decisions. Prediction markets exemplify this.