Fortune's Formula

The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

William Poundstone

Hill and Wang

Claude Shannon

LIFE IS A GAMBLE. There are few sure things, least of all in the competitive world of academic recruitment. Claude Shannon was as close to a sure thing as existed. That is why the Massachusetts Institute of Technology was prepared to do what was necessary to lure Shannon away from AT&T’s Bell Labs, and why the institute was delighted when Shannon became a visiting professor in 1956.

Shannon had done what practically no one else had done since the Renaissance. He had single-handedly invented an important new science. Shannon’s information theory is an abstract science of communication that lies behind computers, the Internet, and all digital media. "It’s said that it is one of the few times in history where somebody founded the field, asked all the right questions, and proved most of them and answered them all at once," noted Cornell’s Toby Berger.

"The moment I met him, Shannon became my model for what a scientist should be," said MIT’s Marvin Minsky "Whatever came up, he engaged it with joy, and attacked it with some surprising resource—which might be some new kind of technical concept—or a hammer and saw with some scraps of wood."

There were many at Bell Labs and MIT who compared Shannon’s insight to Einstein’s. Others found that comparison unfair—unfair to Shannon. Einstein’s work had had virtually no effect on the life of the average human being. The consequences of Shannon’s work were already being felt in the 1950s. In our digital age, people asked to characterize Shannon’s achievement are apt to be at a loss for words. "It’s like saying how much influence the inventor of the alphabet has had on literature," protested USC’s Solomon W. Golomb.

It was Shannon who had the idea that computers should compute using the now-familiar binary digits, 0’s and 1’s. He described how these binary numbers could be represented in electric circuits. A wire with an electrical impulse represents 1, and a wire without an impulse represents 0. This minimal code may convey words, pictures, audio, video, or any other information. Shannon may be counted among the two or three primary inventors of the electronic digital computer. But this was not Shannon’s greatest accomplishment.

Shannon’s supreme opus, information theory, turned out to be one of those all-encompassing ideas that sweep up everything in history’s path. In the 1960s, 1970s, and 1980s, scarcely a year went by without a digital "trend" that made Claude Shannon more relevant than ever. The transistor, the integrated circuit, mainframe computers, satellite communications, personal computers, fiberoptic cable, HDTV, mobile phones, virtual reality, DNA sequencing: In the nuts-and-bolts sense, Shannon had little or nothing to do with these inventions. From a broader perspective, the whole wired, and wireless, world was Shannon’s legacy.

It was this expansive view that was adopted by the army of journalists and pundits trying to make sense of the digital juggernaut. Shannon’s reputation burgeoned. Largely on the strength of his groundbreaking 1948 paper establishing information theory, Shannon collected honorary degrees for the rest of his life. He kept the gowns on a revolving dry cleaner’s rack he built in his house. Shannon was a hero to the space age and to the cyberpunk age. The digital revolution made Shannon’s once-arcane bits and bytes as familiar to any household as watts and calories.

But if a journalist or visitor asked what Shannon had been up to lately, answers were often elusive. "He wrote beautiful papers—when he wrote," explained MIT’s Robert Fano, a longtime friend. "And he gave beautiful talks—when he gave a talk. But he hated to do it."

In 1958 Shannon accepted a permanent appointment as professor of communication sciences and mathematics at MIT. Almost from his arrival, "Shannon became less active in appearances and in announcing new results," recalled MIT’s famed economist Paul Samuelson. In fact Shannon taught at MIT for only a few semesters. "Claude’s vision of teaching was to give a series of talks on research that no one else knew about," explained MIT information theorist Peter Elias. "But that pace was very demanding; in effect, he was coming up with a research paper every week."

So after a few semesters Shannon informed the university that he didn’t want to teach anymore. MIT had no problem with that. The university is one of the world’s great research institutions.

Shannon wasn’t publishing much research, though. While his Bell Labs colleague John Nash may have had a beautiful mind, Shannon "had a very peculiar sort of mind," said David Slepian. Shannon’s genius was like Leonardo’s, skipping restlessly from one project to another, leaving few finished. Shannon was a perfectionist who did not like to publish unless every question had been answered and even the prose was flawless.

Before he’d moved to MIT, Shannon had published seventy-eight scientific articles. From 1958 through 1974, he published only nine articles. In the following decade, before Alzheimer’s disease ended his career all too decisively, the total published output of Claude Shannon consisted of a single article. It was on juggling. Shannon also worked on an article, never published, on Rubik’s cube.

The open secret at MIT was that one of the greatest minds of the twentieth century had all but stopped doing research—to play with toys. "Some wondered whether he was depressed," said Paul Samuelson. Others saw it as part of an almost pathologically self-effacing personality.

"One unfamiliar with the man might easily assume that anyone who had made such an enormous impact must have been a promoter with a supersalesman-like personality," said mathematician Elwyn Berlekamp. "But such was not the case."

Shannon was a shy, courteous man, seemingly without envy, spite, or ambition. Just about everyone who knew Shannon at all liked him. He was five feet ten, of thinnish good looks and natty dress. In late middle age he grew a neat beard that made him look even more distinguished.

Shannon enjoyed Dixieland music. He could juggle four balls at once. He regretted that his hands were slightly smaller than average; otherwise he might have managed five. Shannon described himself as an atheist and was outwardly apolitical. The only evidence of political sentiment I found in his papers, aside from the fact of his defense work, was a humorous poem he wrote on the Watergate scandal.

Shannon spent much of his time with pencil in hand. He filled sheets of paper with mathematical equations, circuit diagrams, drafts of speeches he would give or papers he would never publish, possible rhymes for humorous verse, and eccentric memoranda to himself. One of the memos is a list of "Sometime Passions." It includes chess, unicycles, juggling, the stock market, genealogy, running, musical instruments, jazz, and "Descent to the demi-monde." The latter is tantalizingly unexplained. In one interview, Shannon spoke affectionately of seeing the dancers in the burlesque theater as a young man.

At Bell Labs Shannon had been famous for riding a unicycle down the corridors. Characteristically, Claude was not content just to ride the unicycle. He had to master it with the cerebrum as well as the cerebellum, to devise a theory of unicycle riding. He wondered how small a unicycle could be and still be rideable. To find out, he constructed a succession of ever-tinier unicycles. The smallest was about eighteen inches high. No one could ride it. He built another unicycle whose wheel was purposely unbalanced to provide an extra challenge. An accomplishment that Shannon spoke of with satisfaction was riding a unicycle down the halls of Bell Labs while juggling.

Shannon was born in Petoskey Michigan, on April 30, 1916. He grew up in nearby Gaylord, then a town of barely 3,000 people near the upper tip of Michigan’s mitten. It was small enough that walking a few blocks would take the stroller out into the country. Shannon’s father, also named Claude Elwood Shannon, had been a traveling salesman, furniture dealer, and undertaker before becoming a probate judge. He dabbled in real estate, building the "Shannon Block" of office buildings on Gaylord’s Main Street. In 1909 the elder Shannon married the town’s high school principal, Mabel Wolf. Judge Shannon turned fifty-four the year his son was born. He was a remote father who dutifully supplied his son with Erector sets and radio kits.

There was inventing in the family blood. Thomas Edison was a distant relation. Shannon’s grandfather was a farmer-inventor who designed an automatic washing machine. Claude built things with his hands, almost compulsively, from youth to old age.

One project was a telegraph set to tap out messages to a boyhood friend. The friend’s house was half a mile away. Shannon couldn’t afford that length of wire. Then one day he realized that there were fences marking the property lines. The fences were made of barbed wire.

Shannon connected telegraph keys to each end of the wire fence. It worked. This ability to see clean and elegant solutions to complex problems distinguished Shannon throughout his life.

Shannon earned money as a messenger boy for Western Union. In 1936 he completed his bachelor of science at the University of Michigan. He had little notion of what he wanted to do next. He happened to see a postcard on the wall saying that the Massachusetts Institute of Technology needed someone to maintain its new computer, the Differential Analyzer. Shannon applied for the job.

He met with the machine’s designer, Vannevar Bush. Bush was the head of MIT’s engineering department, a bespectacled visionary rarely seen without a pipe. Bush advised presidents on the glorious future of technology. One of his favorite epigrams was "It is earlier than we think."

Bush’s Differential Analyzer was the most famous computer of its time. It was about the size of a two-car garage. Electrically powered, it was fundamentally mechanical, a maze of gears, motors, drive belts, and shafts. The positions of gears and shafts represented numbers. Whenever a new problem was to be solved, mechanical linkages had to be disassembled and rebuilt by hand. Gears had to be lubricated, and their ratios adjusted to precise values. This was Shannon’s job. It was several days of grunt work to set up an equation and several more for the machine to solve it. When finished, the machine plotted a graph by dragging a pen across a sheet of paper fixed to a drafting board.

Shannon understood that the Differential Analyzer was two machines in one. It was a mechanical computer regulated by an electrical computer. Thinking about the machine convinced Shannon that electrical circuits could compute more efficiently than mechanical linkages. Shannon envisioned an ideal computer in which numbers would be represented by states of electrical circuits. There would be nothing to lubricate and a lot less to break.

As an undergraduate, Shannon had learned Boolean algebra, an unusual subject for engineers. Boolean algebra deals in simple notions like TRUE or FALSE and logical relationships such as AND, OR, NOT, and IF. Any logical relationship may be put together from a combination of these elements. Shannon posed himself the problem of encoding each of these logical ideas in an electrical circuit. To his delight, he succeeded. In effect, he proved that an electronic digital computer could compute anything.

Shannon promptly published this idea in 1937 (he would not, in subsequent years, be known for promptly publishing anything). It has been claimed that this was the most important master’s thesis of all time. Vannevar Bush was so impressed that he insisted that the mathematics department accept Shannon for his doctoral work. The result was too momentous to be "mere" electrical engineering.

Bush’s mercurial colleague Norbert Wiener was equally impressed. (When Wiener got upset with someone, which was often, he sometimes wrote an unflattering caricature of the person into a private, forever-unpublished novel. Bush was the villain of one of these novels.) Wiener realized the superiority of Shannon’s digital computation to that in Bush’s analog computer. With these two famous scientists behind him, Shannon was a budding intellectual celebrity at age twenty-one.

"Apparently Shannon is a genius," Bush wrote in 1939. Yet Bush worried about Shannon. Claude is "a decidedly unconventional type of youngster," Bush warned one colleague. "He is a very shy and retiring sort of individual, exceedingly modest, and who would readily be thrown off the track."

Bush believed Shannon to be an almost universal genius, whose talents might be channeled in any direction. Bush feared that Shannon was unable to guide his own career. There is some irony in that, for Bush, the grandson of a sea captain, was loath to take direction from anyone.

Bush appointed himself Shannon’s mentor. His first and only major career decision for Shannon was a bizarre one. He suggested that Shannon do his doctoral dissertation on genetics.

That may not seem so odd now, with "DNA is information" being a cliché. No one thought in those terms then. DNA’s structure was a mystery. More to the point, Shannon knew nothing about genetics.

Shannon did a little reading. Working alone, he quickly produced a rough draft of a paper. Without Shannon’s knowledge, Bush passed it on to some geneticists. All agreed it was a major advance.

That settled the matter. Bush arranged a summer fellowship for Shannon with Barbara Burks, who ran the Eugenics Record Office at Cold Spring Harbor, on Long Island. This was one of the last outposts of the dying eugenics movement. The significance for Shannon was that it had some of the most extensive records anywhere on inheritance. For years the eugenics organization had, for instance, sent researchers to circus sideshows to interview the dwarfs and sketch pedigrees on the backs of performers’ business cards. The Eugenics Record Office had records purporting to describe the transmission of such attributes as hair color, hemophilia, feeblemindedness, and love of the sea.

While at Cold Spring Harbor, Shannon recognized a mathematical connection between Mendelian inheritance and Einstein’s relativity(!). This startling insight became the basis of his dissertation, titled "Algebra for Theoretical Genetics." Nearly everyone who read the dissertation thought it brilliant. Precious few people did read it. Upon completion of his Ph.D., Shannon dropped genetics like a bad habit. His results were never published in a journal, despite his and Bush’s intentions to do so. The most important of Shannon’s results were rediscovered by geneticists five to ten years later.

In October 1939 Shannon met a Radcliffe coed, Norma Levor, at an MIT party. Levor remembers Shannon as "a very cute guy" standing in a doorway, strangely aloof. She got his attention by throwing popcorn at him. They spoke and were soon dating. Norma was nineteen years old and beautiful, the daughter of a wealthy, highly assimilated Jewish family in New York. Radcliffe girls were not then allowed to bring boys into their rooms. Norma and Claude’s unlikely trysting spot was the Differential Analyzer room. On January 10, 1940, Claude and Norma were married by a justice of the peace in Boston. They drove to New Hampshire for a honeymoon. When Shannon went to register at the hotel, he was told: "You people wouldn’t be happy here." Claude had "Christ-like" features, recalled Norma, which must have convinced the innkeeper he was Jewish. They drove elsewhere.

In March, Shannon wrote Bush and belatedly informed him of the marriage. He said they had moved into a house in Cambridge, and his life had been unsettled. The same letter describes a new idea Shannon was working on: a better way of designing lenses. "Do you think it would be worthwhile to attempt to work this out?" Shannon asked Bush. He mentioned that Thornton Fry of Bell Labs had offered him a job. "I am not at all sure that sort of work would appeal to me," Shannon wrote, "for there is bound to be some restraint in an industrial organization as to type of research pursued."

AT&T was moving most of its research from Manhattan to an expanded suburban outpost in Murray Hill, New Jersey. Shannon spent the summer working at Bell Labs’ Greenwich Village site. Norma remembers this as the happiest part of their brief marriage. She and Claude frequented the jazz clubs. Their next move was to the Institute for Advanced Study at Princeton. This was the home of Einstein, Gödel, and von Neumann. Shannon began what was to be a year of postdoctoral work under mathematician and physicist Hermann Weyl. He worked on topology.

Nothing came of it. Shannon left abruptly to work with mathematician Warren Weaver of the U.S. Office of Scientific Research and Development. Shannon helped calculate gunfire trajectories for the military. Weaver praised his work; then this too was cut short. Shannon’s marriage was breaking up.

Norma saw a disturbing change in Claude when they moved to Princeton. His shyness deepened into an almost pathological reclusiveness. The institute’s scholars are allowed to set their own hours and to work where they like. Shannon chose to work at home. "He got so he didn’t want to see anyone anymore," said Norma. She tried to convince Claude to seek psychiatric help. He refused. During one violent argument, Norma ran all the way to Princeton Junction and took the train into Manhattan. She never returned to Claude or to Princeton.

Claude was devastated. Weaver wrote Bush that "for a time it looked as though he might completely crack up nervously and emotionally."

In the midst of Shannon’s personal crisis, Thornton Fry renewed his offer of a job at Bell Labs. This time Shannon accepted. And once again, Shannon turned his polymorphic genius to something completely different.

Excerpted from Fortune's Formula by William Poundstone.
Copyright 2005 by William Poundstone.
Published in First paperback edition, 2006 by Hill and Wang.
All rights reserved. This work is protected under copyright laws and reproduction is strictly prohibited. Permission to reproduce the material in any manner or medium must be secured from the Publisher.