False Flag or Not

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The contemporary term false flag describes covert operations that are designed to deceive in such a way that activities appear as though they are being carried out by entities, groups, or nations other than those who actually planned and executed them. [Wikipedia]

Think of a time when you acted on false information. You knew it might be false, but you acted as if it was true. Why did you do that?

As absurd as it seems, people do this all the time. People behave as if something were true even though it might not be true.

Think about runaway stocks. Remember the Iomega Zip Drive stock surge of the 1990s?

A lot of people thought Iomega would become bigger than Apple or Microsoft. I know of a man who sold all of his investments in 1995 to buy Iomega and only Iomega. He said at the time, “this will be the most valuable company of all time.”

Was he right?

From a technology standpoint, no. I was a techie back then, and I knew that Iomega Zip Drives would have a short life expectancy. Maybe two or three years tops. Rewritable CD-ROMs and massive online storage would soon make the Zip Drive a clunky burden. The Zip Drive would die fast.

But in 1995, everybody knew Iomega was the king. In fact, the Zip Drive remains to this day the number one selling computer peripheral of all time.

Because the mid-90s were the peak of nerd-worship, anyone in the tech business learned what everyone thought about technology. At family gatherings, everybody wanted to talk to me about computers. People wanted to know more, and they saw me as an expert. They also wanted to share with me their knowledge. So I learned what people were thinking.

That’s how I learned that a senior vice president at a very large corporation, a man with an MBA from a school you’ve heard of, took his life savings and bought Iomega.

Well, Motley Fool also bought a lot of IOM in 1995. And the value of their Iomega stock rose 1,500% in the next 13 months.

I ask again, did my acquaintance make the right move on IOM?

To answer the question, you need more information. You also need an understanding of the game theory concept of “common knowledge.” For that, I’ll let genius Ben Hunt of Salient Partners explain:

Your feelings about a stock, as opposed to your feelings about a company, should be completely determined by your beliefs about other investors and their feelings about the stock. In the lingo … your preference functions for stocks qua stocks are entirely exogenously derived and epiphenomenal. There is no rational internally-developed preference for one stock versus another stock, any more than I prefer a $5 chip from Harrah’s to a $5 chip from Caesar’s Palace. The only thing I care about is whether other investors, for whatever reason, will value the Harrah’s chip at $6 tomorrow.

Common knowledge is something everyone knows and everyone knows everyone knows. It’s information on which you can expect other people to act a certain way.

For example, imagine that on a Thursday NOAA and the local weather fearmongers bombard St. Louis with news of the “winter storm of the millennium” scheduled to begin the following Tuesday. You can bet store shelves will be devoid of bread, milk, eggs, and rock salt by midday next Monday. It doesn’t matter whether the prediction is right. What matters is that most people will behave as if it’s right. If you need bread or milk, you better get it on Sunday.

Except . . . other people will also think ahead, so you better beat them by shopping on Saturday. But what if a lot of people also think about shopping on Saturday? So you decide to shop on Friday.

Until . . . you think of all the other people who might be reasoning backward like you are. So, you stop at Schnuck’s on your way home from work Thursday and find bread, milk, and salt already running low. You buy three gallons of milk, three loaves of bread, and 100 pounds of rock salt. The perishables will go bad before you finish them, but that doesn’t matter. You beat both the storms and the common knowledge game. And if worse comes to worst, you can always sell your excess milk and bread to desperate, short-sighted neighbors at a high price.

That’s common knowledge. Again, it doesn’t matter whether the forecast is right. What matters is what everyone else will do in response to the forecast.

Now, back to Dr. Hunt and the old newspaper beauty queen contests:

[The 1930s was] the heyday of the Miss America contest and “bathing beauty” pageants everywhere), less so to us. Here’s how it works.

A newspaper would run a page of photographs of pretty girls, and readers were invited to mail in a ballot with their choice of the prettiest. If you picked the girl who got the most votes, you were entered into a drawing for some sort of prize. Voting for the girl you think is the prettiest is what Keynes would call the first degree of decision-making.

Now it doesn’t take a lot of thought before you realize that choosing the girl who you truly believe is the prettiest is probably not a winning strategy. To win, you need to choose the girl who gets the most votes as the prettiest, and your personal preferences aren’t nearly as useful in that task as figuring out who everyone else is going to vote for as the prettiest. Voting for the girl you anticipate more people will consider to be the prettiest is what Keynes would call the second degree of decision-making.

But there’s a big problem with the second degree. It assumes that everyone else is making a first degree decision, that everyone else is making a choice “on the merits” of the photographs and you’re the only one smart enough to think about the average preference of the group. As a result, you quickly realize that everyone will be thinking exactly like you are, so you need to make a third-degree decision – who will get the most votes when all the voters are basing their votes on who they think will get the most votes? This is the Sentiment game!

Note that this third-level decision probably has nothing to do with the relative or objective prettiness of the girls. If “everyone knows” that the brunette with the biggest smile tends to win, then that’s where you should place your vote regardless of your personal preference or your knowledge of everyone else’s personal preferences. It’s the “everyone knows” component of the contest – regardless of what the contest is fundamentally supposed to be about – that determines voting behavior and contest winners. To get beyond the third degree of decision-making requires a superior identification of whatever it is that “everyone knows”. As Keynes wrote, “We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees.”

Just like shopping for staples before the snow storm, winning these beauty pageant contests required knowing what everyone else knows and anticipating their behavior.

My friend with all the Iomega stock was smart to buy when he did. If he sold near the peak, he was brilliant. If not, he might have lost a lot. Either way, though, he bought Iomega for the wrong reason. He bought Iomega because he loved the company, not because he expected everyone else to buy the stock. He wasn’t playing the common knowledge game. He was playing the corporate strategy game. My guess is he held onto the stock all the way to bottom. Unless he learned about game theory before the crash.

When you’re in a game like stocks, shopping for stables, or geopolitics (and geopolitics is a formal game), common knowledge must determine your moves. And common knowledge means you must behave as if everyone else will behave as if the key information were true even if it’s not.

Which brings us to Michael Savage and the Syrian sarin gas attack.

Dr. Savage has determined that the sarin gas attack was a false flag. Dr. Savage is not alone.

Now, let’s pretend Dr. Savage is right. Let’s just pretend that the sarin gas attack was a false flag. In other words, let’s pretend the Russians were right and there was no gas attack. Instead, anti-Assad forces staged the whole thing.

Remember, this is just make-believe, so don’t assume I’m a false-flagger. And don’t believe I’m not, either. Instead, ask yourself this: should the US response be different if Savage is right?

Your immediate answer will probably be, “Yes, of course.” You will probably tell yourself that, if the sarin attack was a false flag perpetrated by the rebels, then we should punish the rebels instead of Assad. That’s the logical and moral answer.

But is that the game theory answer?

Well, how many people besides Michael Savage and a few others believe the sarin attack was a false flag? Of those people who believe in the false-flag theory, what is their role in the game of geopolitics? Are they heads of state or of government? Do they have armies? Are they in the mass media, broadcasting into billions of brains 24/7?

Dr. Hunt reminds us what’s most important in the common knowledge game:

But the more precise answer is that the role of the Missionary is served by any signal that is propagated widely enough and publicly enough so that everyone thinks that everyone has heard the signal. The important thing is NOT that lots of people actually hear the signal. The important thing is that lots of people believe that lots of people heard the signal. The power source of Common Knowledge is not the crowd seeing an announcement or a press conference. The power source of Common Knowledge is the crowd seeing the crowd seeing an announcement or a press conference. This is why sitcom laugh tracks exist. This is why American Idol is filmed in front of an audience. This is why the Chinese government still bans any media mention of the Tiananmen Square protests more than 20 years after they occurred. The power of a crowd seeing a crowd is one of the most awesome forces in human society. It topples governments. It launches Crusades. It builds cathedrals. And it darn sure moves markets.

Geopolitics is a different game than national or local politics. But it’s still a game like stock markets. Geopolitics influences local politics, and vice versa. But it’s not a direct influence. And it’s imbalanced. Geopolitics has an immediate and ubiquitous effect on local politics, while local politics has a very slow, very gradual, and muted effect on geopolitics. Until those local events reach a tipping point.

WWII was a geopolitical event that affected the local politics of just about every country in the world. But WWII resulted from local political developments over the previous 30 years. It took a long time for local events in Germany and Japan to hit the world stage. And those local events in two countries had little influence on local politics in the USA. Until December 7, 1941, of course. Then everything changed.

Just as we stipulated that Savage was right about the false flag, let’s stipulate that all of the players in the geopolitical game will behave as if Savage was wrong. They might all know he’s right, but they also know that all the other players will behave as if he’s wrong. Like the beauty contest players, picking the prettiest girl isn’t the game. Picking the girl who will get the most votes is the game.

In Syria, the crowd saw the crowd seeing Bashar al-Assad gas babies, little babies. And that’s all that matters.

The US response, then, must be appropriate to a game in which all the other players will behave as if Assad gassed his own people. Who actually did it, if it was done at all, matters morally but not strategically.

If this story leaves you feeling dissatisfied. I’ll give you a thought experiment. What would happen if Trump had acted as if the Savage was right? How might that game unfold?

You may have your say in the comments below.

P.S. Even if you’re not interested in stocks, markets, and investments, Ben Hunt’s Epsilon Theory is a must-read site for anyone who likes to learn and think.

 


Also published on Medium.


2 Comments

  • Conservative Ken

    April 8, 2017

    Not dissatisfied, but a little uneasy.
    Since 2009, when I joined the Tea Party, I have been a linear thinker. I watched repeated defeats caused by old world linear tactics. Donald Trump is not a linear President. He is an unconventional strategist.
    As I watch his moves I see blunders, only to watch him emerge successful by weeks end.
    I’m getting used to it, but it’s one hell of a ride.

    Reply
    • William Hennessy

      April 9, 2017

      You are remarkably self-aware. That makes you more robust than 99% of people. You will get through the ride better than you went in.

      Reply

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