Words, Rules, and Narratives: Wittgenstein Reads the Market 

January 2025

In the 19th century, empiricism transformed, emphasizing scientific knowledge as the pinnacle of reliable understanding. Figures like John Stuart Mill championed the hypothetico-deductive method, which framed scientific inquiry through broad hypotheses tested deductively against empirical observations. This approach underpinned a wider movement known as scientism, which posited the scientific method as the sole legitimate means of acquiring knowledge that persisted into the early 20th century. Central to this empiricist ethos was the rejection of metaphysics, echoing David Hume's assertion that any claim irreducible to empirical terms was nonsensical, fit only for "the flames." For empiricists, meaning itself was tethered to sensory experience: Mill, for instance, defined "matter" as "the permanent possibility of sensations" and "mind" as "the permanent possibility of reflections," anchoring abstract concepts in tangible phenomena.

Building on these ideas, thinkers like Bertrand Russell advanced logical atomism, seeking to decompose knowledge into fundamental logical components organized into deductive systems. Russell's pursuit of an ideal language—free of ambiguity, with each term precisely mapped to a referent—reflected empiricism's drive for clarity. Yet this rigour also exposed tensions, particularly in reconciling language's structure with the complexities of reality.

Enter Ludwig Wittgenstein with Tractatus Logico-Philosophicus (1921), a culmination and a subversion of early 20th-century empiricism. Building on Bertrand Russell's logical atomism, Wittgenstein sought to purify philosophy by exposing language's logical scaffolding, yet his conclusions destabilized the empiricist foundations he initially embraced.

At its core, the Tractatus advances a radical empiricist thesis: meaningful language is confined to propositions that mirror empirical reality. Drawing from Russell's belief that language's structure reveals the world's structure, Wittgenstein argued that the world is not a collection of isolated objects but a nexus of facts—logically structured states of affairs. Through his "picture theory of meaning," language reflects these facts: words correspond to objects, and sentences form logical "pictures" of possible or actual configurations of the world. For a proposition to be meaningful, it must map onto an empirical state of affairs; anything beyond this—ethics, metaphysics, the Tractatus' philosophical claims—was dismissed as "nonsensical," transcending the bounds of what can be "said." Here, Wittgenstein echoed the empiricist dogma that truth resides solely in empirically verifiable statements, relegating all else to silence.

Yet Wittgenstein's project also subtly unravelled empiricism's limits. While he anchored language in empirical reality, he introduced a paradoxical duality: logical and mathematical propositions, though devoid of empirical content, underpin all meaningful discourse. These propositions, he argued, are tautologies—empty of factual substance but essential for structuring thought. Logic, in this view, is not a discovery about the world but a mirror of language's form, a scaffolding that enables empirical statements to function. This distinction between the "sayable" (empirical facts) and the "unsayable" (logic, ethics, the mystical) carved out a space for significance beyond science. Though ethics and metaphysics could not be spoken, Wittgenstein hinted they might be shown—felt in the texture of human experience, even if inexpressible in language.

This tension—between empiricism's rigour and the ineffable's pull—redefined philosophy's role. For Wittgenstein, philosophy was not a body of doctrine but an activity of clarification, a dismantling of linguistic confusion. By demarcating the boundaries of sense, it would silence pseudo-problems born of language's misuse, leaving science to handle empirical truths. Yet, in doing so, he acknowledged realms of meaning that empiricism could not capture: the ethical, the existential, and the sublime.

LW underwent intellectual transformation between his early and later work, reshaping the landscape of analytic philosophy. His journey from the austere logical framework of the Tractatus Logico-Philosophicus to the fluid, context-driven insights of the Philosophical Investigations reveals a radical rethinking of language, meaning, and the purpose of philosophy itself.

By the time of the Philosophical Investigations (1953), Wittgenstein had renounced the Tractatus as overly rigid. Rejecting the picture theory, he now saw language as a toolkit of diverse "language games"—contextual practices where meaning arises from use rather than reference. Words, he argued, lack fixed essences; their meanings emerge through social interaction, like players following mutable rules in a game. This "meaning as use" doctrine challenged essentialism, proposing instead "family resemblances"—overlapping similarities that link concepts without a core definition. Language was no longer a solitary mirror of reality but a communal activity embedded in "forms of life." The idea of a private language—a lexicon for personal sensations—was dismissed as incoherent since meaning requires shared criteria. Once a clarificatory project, philosophy became therapeutic, untangling conceptual knots caused by misusing language. Wittgenstein embraced ambiguity, rejecting the quest for an "ideal" logical language in favour of studying ordinary speech. His later work, intentionally fragmentary, reflected his view of philosophy as an ongoing, open-ended process rather than a system of doctrines.

With its insights into language, logic, and the limitations of rules, Wittgenstein's philosophy offers a provocative lens through which to look at investing and modern finance. By repurposing his ideas, we can expose the frailties of financial or investment strategies that masquerade as infallible systems—and chart a path toward more grounded decision-making.

LW dismantled the notion of language as a rigid mirror of reality, proposing that meaning emerges dynamically from how words are used in the fluid contexts of human life. Rejecting his earlier quest for a universal logical structure, he argued that language is a toolkit of "language games"—social practices where words derive significance not from fixed definitions but from their function in specific situations. To illustrate this, Wittgenstein offered a deceptively simple example: a triangle.

He invites us to observe how a single triangle can be seen as a hole, a mountain, a wedge, an arrow, or a half-parallelogram, depending on the frame of reference we impose. The figure itself does not change, yet its meaning shifts with the words we choose to describe it. This "aspect-seeing" reveals a profound truth: reality is not passively observed but actively shaped by linguistic interpretation. Like all phenomena, the triangle becomes what we make it through the stories we tell about it. Words do not merely label the world; they condition how we perceive and engage with it.

This insight extends beyond geometry. Consider how we narrate our lives: a market downturn might be framed as a "correction," a "crisis," or an "opportunity," each term invoking distinct emotional and practical responses. These stories are not arbitrary—they are tools for organizing experience, transferring ideas, and building shared understanding. Wittgenstein's point is not that storytelling distorts reality but that truth is inseparable from the narratives we construct to navigate it.

In finance, logic is similarly wielded to justify investment narratives: strategies are framed as coherent "logical series". Yet Wittgenstein's work reveals a paradox: any rule can be retrofitted to explain past events, even random ones. This mirrors the statistical pitfall of overfitting, where complex models mistake noise for patterns, crafting narratives that flatter historical data but fail in the wild. Investors, like philosophers, must ask: Does this rule illuminate reality or merely impose order on chaos?

Financial narratives are often linguistic constructs—promissory notes dressed in the grammar of certainty. Wittgenstein's later philosophy, which framed language as a toolkit of context-dependent "games," dismantles the myth of a universal investing playbook. A strategy claiming to work ignores the fluidity of markets, where rules morph in meaning as conditions shift. The Tractatus warned that language must correspond to reality; in finance, strategies untethered from empirical rigour (e.g., vague promises of guaranteed returns) risk catastrophic disconnects.

Wittgenstein's infamous rule-following paradox— any action can be made to accord with a rule—undermines rigid investing frameworks. Consider technical analysis: chart patterns interpreted as "rules" often reflect hindsight bias, not predictive power. A hedge fund's algorithmic model might retroactively justify market noise as a "signal," much like a philosopher inventing logic to rationalize randomness. This does not render rule-based investing inherently flawed, but it demands humility: rules are, in the end, tools, not truths.

Wittgenstein's scepticism of language's seductions finds a parallel in quantitative finance. While rules can be spun from thin air, mathematics—via probability theory and backtesting—can expose overfitting. Calculating the likelihood that a strategy's success is statistical luck injects rigour into the "language game" of investing. As Wittgenstein might say, What cannot be measured probabilistically should be met with silence.

Later, Wittgenstein rejected essentialism, arguing that concepts like "games" share overlapping traits—family resemblances—rather than fixed definitions. Similarly, there is no Platonic ideal of a "good investment." Value investing, momentum trading, and index funds share features (e.g., diversification, risk management) but thrive or fail based on context. Investors, like linguists, must evaluate strategies within their ecosystem: What works in a bull market may combust in a crisis. When unmoored from reality, financial language breeds conceptual confusion with real-world consequences. Blind faith in rules risks conflating correlation with causation and pattern with prophecy.

Wittgenstein's work, when applied to finance, is a call to epistemic vigilance. Investors must:

1. Interrogate rules: Does this strategy reflect reality or merely narrate the past?

2. Embrace mathematics: Quantify the risk of overfitting; treat backtests as hypotheses, not proofs.

3. Contextualize: Recognize that strategies are language games—useful only within specific "forms of life" (market conditions).

4. Think autonomously: Reject the siren song of universal formulas.

Ultimately, Wittgenstein's philosophy does not invalidate investing logic—it sharpens it. By marrying mathematical rigour with an awareness of language's traps, investors can navigate markets not as blind rule-followers but as critical thinkers attuned to the difference between signal and story.