On March 9th, Mohamed A. El-Erian joined the Gates Cambridge community for a virtual fireside chat, where he discussed decision-making in conditions of uncertainty, the economic impact of the pandemic and relief efforts and the importance of diversity of thought and scenario planning.
El-Erian is President of Queens’ College, Cambridge and Chief Economic Advisor of Allianz, the parent company of PIMCO, where he formerly served as chief executive and co-chief investment officer. He also chaired President Obama’s Global Development Council, is a columnist for Bloomberg View and sits on the board of Barclays.
El-Erian began by discussing how the world, especially post-pandemic, is “multimodal”. We are used to thinking about the world as being based on a normal distribution and bet on baseline statistics. But very unlikely events do happen and we should change our way of thinking accordingly. The post-pandemic world will be “incredibly fluid”, he said.
“You will make mistakes,” he explained. “The good news is that they are recoverable. The bad news is that you will have to think differently.”
I asked El-Erian what the imperative to think differently has meant in his life. He said that two moments have stayed with him. The first is when his father told him to read four newspapers every day. The news is the same, but the interpretations are different. It taught him that how you think is just as important as what you think. The second moment took place during his interview at Queens’ College. After giving an impressive, rehearsed monologue that he prepared about a book he had read, his interviewer asked him a simple question that demolished the book’s central argument. When El-Erian fumbled for words, the interviewer stood up and threw him a review he had written of the same book, adding, “simply because it’s published doesn’t make it true”. El-Erian said that interaction forced him to think about how he thought and to identify his blind spots. Now, he uses social media to seek out diversity of opinion.
And it was thinking about alternative outcomes that was the secret to PIMCO’s good returns during the Global Financial Crisis, he said. The week before Lehman Brothers’ collapse, his team put forward three scenarios: 85% thought that the bank would not fail; 12% thought it would fail but in an orderly fashion; and only 3% predicted the actual outcome – that the bank would fail in a disorderly fashion. For each scenario, PIMCO created an action plan and this scenario planning prepared them for the worst possible outcome – even if they hadn’t predicted it.
Asked about the pandemic, El-Erian discussed the risk of inflation (uncertain, but our system is wired for low inflation so price increases will pose a challenge), an eroded middle class (along with political and news media polarisation as a source of instability), and how the pandemic is the great unequaliser (not just of income and wealth, but of opportunity).
One attendee asked how we can attract top scientists to publicly funded projects. El-Erian said that the pandemic response has served as a good template. During Covid, the public sector was able to think like a venture capitalist. The government took big risks and provided scientists with a chance to risk failure without the burden falling on them. “There will have to be more risk sharing between private and public systems,” he added.
This event was organised by the Gates Cambridge Scholars’ Council External Officer, Shalom Henderson , who is doing a PhD in Medial Science.
*Sarah W Hirschfield  is doing an MPhil in Philosophy.