Aristotle: Belief vs Knowledge
Knowing the difference between belief and knowledge is absolutely critical to investing.
All men desire to know. From the dawn of humanity until today, the desire to know amongst mankind is unfathomably huge. On a local level, we may be really interested in knowing what our peers are doing. We sometimes enjoy looking at other people’s Instagram feed or STRAVA account (to see if they have been exercising or not). On a higher level, there are literally countless of institutions devoted to research and development in various fields with a common goal: advance knowledge in a particular area.
But what is knowledge? How do we know that we know? The study of knowledge is referred to as epistemology. While we definitely will not go down the rabbit hole of epistemology, it is refreshing to take a step back and think about what we consider as true to be actually true or mere belief.
While we know that if we have a certain knowledge, then that knowledge is a true belief. In logical notation, it is written
Knowledge K that is true, implies that belief B is also true. But unfortunately, reverse is not always true and therefore, below statement is false.
Why? Because not all beliefs is knowledge. So if you have a belief, that belief does not necessarily mean true knowledge.
For instance as a lifetime fan, I might know that Manchester United is going to win the premier league title next season. I also think that this is a given, considering that Manchester United is the greatest football club ever in history (please don’t unsubscribe after reading this sentence, it is just an example).
But for all of you who support Liverpool, Man City, Arsenal or any other football clubs that are clearly not as good as Man Utd, you can easily say: “Toby that [Man Utd winning the title] is mere belief, not knowledge”.
Even if Manchester United ends up winning the title next year, my claim that the club would win the title unfortunately does not qualify as knowledge.
Why Discussion about Knowledge is Important?
I feel that we live in an unprecedented age of information overflow. Information that we consume dictate and shape us as individuals on a constant basis, knowingly and unknowingly.
For example to many, knowledge simply refers to what is broadcasted in the news out there. This is reasonable because news often plays a huge role in informing us about what happened:
A war broke out
An earthquake occurred
A speed railway called whoosh just went operational
and many more
But aside from informing us about what happened, media and the news also disseminate information that is more editorial in nature:
A political candidate is the greatest ever in history
A company is threatened in the wake of technological advancement
This biodiversity is vulnerable thanks to urbanisation
and many more
As I have pointed above these information that we consume often get jumbled up together (the opinions and the facts), and it sometimes becomes tricky to distinguish and clearly pinpoint what is knowledge and what is mere beliefs.
In the world of investing, it is all the more important for us to be clearly cognisant of the difference between knowledge and belief. When our money is on the line, we should know what we are betting given information that we really know to be true.
For example, if we look at stock A and we find that probability of price increase given K is close to 1 (0.95) as denoted below
We might think that buying stock A is an ideal investment. But if K morphs into a mere belief B as follows
Buying stock A suddenly becomes a riskier bet, because
You can see that if probability of B is less than 1 (because it is a mere belief), then probability of stock A increasing is smaller assuming P(B|A increase) is constant.
Knowledge vs Belief
So who better to learn from about the difference between knowledge and belief other than the inventor of logic himself, Aristotle. This is my humble attempt to shed light on how Aristotle viewed the subject at hand.
Back in the day (384 - 322 BC), Aristotle himself understood that knowledge is not equals to mere beliefs. He largely agreed with Plato in saying that achieving knowledge requires substantial work. In his work posterior analytics, we could decipher how Aristotle views about knowledge and the requirements for mere beliefs to “graduate” to become knowledge.
In short, Aristotle asserts that a knowledge is a
valid argument that has been demonstrated.
Now how does a valid argument get demonstrated? His work on posterior analytics talks about the things that need to be done (sort of like a checklist) that is required to demonstrate a valid argument.
But let’s refer to Aristotle’s work prior analytics to understand what is a valid argument first. His work prior analytics is foundational to posterior analytics.
What is a valid argument?
Two premises with a term in common. These premises yield a conclusion. Such is called a syllogism.
For example,
Premise 1:
All human is mammal
Premise2:
All male is human
Conclusion:
Therefore, all males are mammals
Aristotle universalised this specific example of an argument into abstract terms as follows:
In english: c implies a and a implies b. Therefore c implies b.
Therefore, a conclusion that follows from 2 true premises are known to be a valid argument.
How Does Aristotle Demonstrate a Valid Argument into a Knowledge?
Well, Aristotle is a demanding man.
Firstly, if you want to demonstrate, you need to explain.
One pre-requisite to achieve an understanding is the ability to explain the conclusion that we have deduced.
An example syllogism is as follows:
Giraffe are land animals that eat from tall trees. (Premise 1)
Land animals that eat from tall trees have long necks. (Premise 2)
Therefore, Giraffe has long necks. (Conclusion)
Aristotle notes that there is a feature that links the two premises (also known as the middle term) to explain why the conclusion is true. So in the above syllogism, we can explain the conclusion as follows:
Giraffe have long necks because they are land animals that eat from tall trees.
Secondly, knowledge needs to be universal
Aristotle was not interested in particularities and exceptions. He was only interested in essential features that produce an understanding. Essential features could be applied to a class of objects that allow one to gain understanding.
On the other hand, features that are not essential are accidental. For example:
Toby is human because he is rational
Rationality is considered to be an essential feature to be human. If one cannot be rational at all, then one is not considered a human. So valid arguments that pertain to rationality of humans can give birth to understanding.
However,
Toby does not necessarily have to be a human because he is fat
Being fat is an accidental feature of Toby. Being fat does not necessarily mean that he is a human. For example, your pet called Cookie might be fat. But she most definitely is not a human.
So for example syllogism that says:
Humans that eat excessively and does not exercise are fat (premise 1)
Toby eats excessively and does not exercise (premise 2)
Therefore Toby is fat (conclusion)
is not considered as a demonstration by Aristotle because fat is an accidental feature of being human. In fact, Toby might, from time to time, be not fat. Which leads us to Aristotle’s pre-requisite of understanding which is permanence.
Aristotle asserts that knowledge needs to be necessarily true permanently
Yes, for a thing to be considered an understanding, it needs to be true permanently. This is what Aristotle set as a rule of understanding, although it differs from modern day logicians. So for example, if there were to be no humans, then there is no knowledge about human.
To Aristotle, once a knowledge is produced through a demonstration of a valid argument, it is necessarily true permanently.
This is in contrast to modern day scientists where we look for exceptions in a bid to falsify theories that we have come up with in the first place. But for Aristotle, exceptions to general knowledge is relegated to being “unnatural”.
In this regard, as he views that knowledge has to necessarily be true permanently, it also needs to be derived from prior knowledge (one that is also necessarily be true permanently).
But, there is a problem..
To Aristotle, he thinks that premises of a conclusion that counts as knowledge needs to be a knowledge itself.
This means that there needs to be a demonstration for the premises of a knowledge. Otherwise, that conclusion will never be counted as knowledge.
So in the earlier example,
For c implies b to be demonstrated as knowledge,
c implies a needs to be demonstrated as knowledge and
a implies b needs to be demonstrated as knowledge.
Now this is a problem because we would have an infinite regression of demonstration of premises and we would end up not knowing anything 😢
Aristotle solves this by setting a list of foundational knowledge that is set to be true by default. This list of knowledge is known as first principles. He decides things that are true by default by none other using a faculty called sensations. He also emphasized that it needs to be repeated sensations for us to classify a thing as knowledge in a first principle basis.
Wow, that’s a mouthful
But on a tldr basis, Aristotle stresses that a knowledge (or understanding) is a demonstration of a valid argument. Premises of a knowledge need not be infinitely demonstrated as he thinks that there are foundational knowledge that is acquired through repeated perception.
Now relating it back to investments
Notice how awfully applicable this is to the world of investments. It is very very useful for us to learn (derive knowledge) about a company through first principles. That is a set of repeated experiences that allow us to form arguments, leading to correct understanding (demonstrated conclusions) about a company.
For example, if we are analysing a cigarette company, instead of jumping into conclusion saying that cigarette is a sunset industry, we might want to take a look at the sales of cigarettes.
Are people buying more cigarettes overtime? Or less?
When we have a solid foundation of what is knowledge and what is not knowledge, then it becomes easier for us to pinpoint biases that we might have. When we successfully eliminate our biases, that’s when we can clearly view opportunities that are unseen by others. And I suppose, that’s how we increase our chances of making a good investment.
Cool how the Father of logic thousands of years ago can offer great insights about investments. Well, investments should be logical anyways and not emotional, am I right? 🙂