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Two main types of reasoning are reasoning by analogy and reasoning from first-principles.
Reasoning by analogy involves thinking about prior experiences that resemble your current situation and continuing with the same action as in that analogy. Reasoning from first-principles involves analyzing fundamentals about the current situation and constructing reasoning from that. But that distinction is incomplete.
We easily fool ourselves that we are reasoning by analogy when we are actually reasoning by inertia. For reasoning by analogy to be valid, your current situation needs to resemble the situation where the analogy originated. If your current situation does not resemble the original situation—you are reasoning by inertia.
“Reasoning by inertia” is actually an oxymoron. Making decisions through inertia, or continuing with past actions, does not constitute reasoning. You simply continue with what has been done before without thinking about your action. But reasoning is still implied. You evaluated the situation and decided that inertia was the best course of action. You had the agency to reason by analogy or first-principles. Despite being an oxymoron, the concept of “reasoning by inertia” is useful in showing the limits of analogies.
The distinction between a static and dynamic world is useful for understanding when your default reasoning is reasoning by analogy or inertia.
A static world does not experience change. People use analogies based on the past, and the past is the same as the present. Reasoning by analogy dominates over reasoning by inertia as nothing changed to make the analogies invalid.
A dynamic world experiences change. People use analogies based on the past, but the past is different from the present. Reasoning by inertia dominates over reasoning by analogy as changes in the world invalidate analogies.
The more your world or environment changes, the more skeptical you should be of analogies.
Let’s look at two extreme examples:
You are a professor who teaches two sections of the same class back-to-back. Any reasoning you deduce from the first class—like what’s the best way to present a certain finding—applies to the second class because you are operating in a similar environment. Reasoning by analogy is valid.
If you are thinking about how to educate your children in the 21st century, looking back at how our ancestors educated their children 15,000 years ago is not a great analogy. Compared to the past, we now have more technology that allows a small part of the population to produce enough food for all of humanity. Your child does not need to learn hunting. Instead, considering how to prepare your child for a service-oriented or a manufacturing-oriented economy is more appropriate. Reasoning by analogy is invalid. If we based our education system on how our ancestors educated their children 15,000 years ago despite all the change in the world—we’d be reasoning by inertia.
The two examples above are extreme. Thinking an analogy between two back-to-back classes does not apply or an analogy between education 15,000 years ago and today applies is absurd. Examples in between those two extremes are where we should be more cautious.
Let’s consider the banking system. The US experienced a risk of bank runs in the 2008 financial crisis. The policy of deposit insurance up to a certain amount and central bank and legislative intervention prevented the panic from spreading across the country. Government policies prevented bank failures or at least minimized them, so central bank policies stay the same, as they worked in the past. Now it’s 2023 and the Silicon Valley Bank is experiencing a bank run. The combination of the rise of online banking, social media, and the concentration of your clients in group chats made the bank run contagion spread much quicker than in 2008. An appropriate central bank risk calculation would account for all of those factors, especially the ease of transferring money with online banking and the speed with which panic spreads on social media. Banking regulators reasoned by inertia. Their monitoring and response policies were based on a world where bank runs happened slower than today, making the analogy with past bank runs less valid.
Reasoning by inertia is so dangerous precisely because you don’t think you’re reasoning at all. You simply continue with something that worked in the past.
In discussing David Deutsch’s The Beginning of Infinity, Brett Hall makes a good example of reasoning by inertia from the domain of biology:
Evolution by natural selection being a good explanation in biology doesn’t mean it can be extrapolated into domains outside of biology. Marx thought it was but that’s incorrect. And the reason it’s incorrect is because the unit of selection is a gene which he never knew anyway. But moreover, as David has said, it’s just a metaphor. He was using a metaphor and taking himself too seriously comparing evolution of biological organisms to a way in which a state is going to evolve over time, change over time. Change going on in a natural world, and therefore change going on in society. So they will be explanatory in a different area. Worse of all, he was going to use it to predict things. We cannot predict what the organisms are going to evolve into in the future as Darwin said.
- toKCast - Ch 15 “The Evolution of Culture” Part 1
Marx extrapolating evolution by natural selection into the domain of governments is an example of reasoning by inertia. If something is valid in biology—assume it is valid in other domains. But the analogy was incorrect because governments are fundamentally different from biology, and trying to analogize them is an argument by inertia.
We can think of the life of institutions as reasoning by first-principles at birth, reasoning by analogy most of the time, and reasoning by inertia at their demise. For some time since founding, the environment is similar to the time at founding and reasoning by analogy is still valid. As the world changes with time, reasoning by analogy becomes reasoning by inertia, so the institution automatically declines in that changing world.
In the domain of advice, Jeremy Giffon believes:
There is no such thing as general advice. Asking someone for it is simply asking them to make up a general rule based on their own specific experience. Instead, ask people what they did and why and decide whether and how it applies to your life, yourself.
General advice is a wishful belief in the broad applicability of reasoning by analogy. The correct reasoning by analogy involves an understanding of how much someone’s reasoning applies to your life. Otherwise, you’re reasoning by inertia.
Analogies are especially dangerous when you have a high variance outcome.
All rules—outside of the domains of hard sciences—have exceptions (and saying that rules in the domain of hard sciences don’t have exceptions is an exception to the rule that all rules have exceptions). When you have high variance outcomes like venture capitalists whose returns are driven by the power law, missing out on one opportunity can be the difference between an exceptional and a mediocre career. Relying on analogies in such domains has a large downside potential.
High variance domains require a rejection of analogies because outcomes are driven by a small number of cases, and analogies make it easy to overlook an opportunity. Exceptional opportunities today rarely resemble exceptional opportunities of the past.
Blockchains negate many analogies. The fundamental facts about blockchains differ from systems of the past. Blockchains create a cryptographically-enforced global consensus and their fundamental unit is an account, not a person. These properties have not existed before, so one should reason about blockchains from first-principles, not an analogy-disguised inertia.
Reasoning by inertia is wrong because it gives the inaccurate perception of reasoning. Either accept that you are making a decision based on inertia, or reason using an appropriate analogy or from first-principles. Don’t fool yourself.