Developing the capacity to survive Black Swan Events


In this post I will describe how Nassim Taleb’s 10 Principles for a Black Swan-robust Society is influencing my understanding and appreciation for dealing with uncertainty and risk (U&R) with areas of talent management (TM) and general decision making. For those who are unfamiliar with this author’s notion of Black Swan. It is an unforeseeable or unpredictable event that has life threatening or at the very least substantial life altering consequences.

Taleb’s 10 principles are (italicized words are my thoughts):

  1. What is fragile should break early while it is still small. Corollary: nothing should ever become to big to fail. This brings to mind the whole notion of how large of a stake we should have in any one portfolio investment. I am reminded of the weighting that Nortel and RIM have had in the TSX. When these organizations soar, everything in the index looks good. When they go figuratively south, everything on the index goes south too. So any balanced portfolio of the TSX is by default extremely exposed to a “single entity/event” failure. So for me, the question I will be asking more diligently is: “What single thing in our portfolio of investments/activities that would have a serious/devastating effect on us if it failed?”
  2. No socialisation of loses and privatization of  of gains. Whatever may need to be bailed out should be nationalized. For me the warning is: if what you do is of such significance that if you fail you will seriously drag me into it (consequences), you should be stopped unless you get my support. Nobody has the “right” to put other people’s lives on the line without their explicit understanding and endorsement. I appreciate that we often don’t know who is going to be affected by our actions, But at the very least a serious stakeholder analysis needs to be done so we are visibly making the effort to accomodate this principle. Readers to this BLOG know that my process of U&R incorporates such an analysis.
  3. People who drove a school bus blindfolded (and crashed it) should never be given a new bus. Corollary: when our (others’) lives are on the line – trust only goes one way when the S##t hits the fan. When lost, trust virtually stays lost (regarding a parallel future circumstance). This is such an interesting notion of accountability with responsibility. For me, there are circumstances where “second chances” should not be allowed (i.e., no 3 strikes and you’re out policy). Hence accountability can also include the concept of being banned for life from specific activities. No, I am not advocating life imprisonment for misdemeanours.
  4. Don’t let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. The implications of how we bonusize recognition sets into play a whole host of short and long term consequences that can inadvertently make your best interests secondary. I learned this lesson the hardest of ways many years ago when I established an incentive system in a sales area. The new system work exactly as I had designed it. I had just been oblivious to the unintended consequences. I got exactly what my ignorance/obliviousness deserved.
  5. Compensate complexity with simplicity. There is some almost counter intuitive thinking here: we deal best with complex systems using simple approaches. Complex systems survive through redundancy (the antithesis of optimization and “just enough”) and slack (the notion of reserves which is counter to the mantra of just-in-time and one available resource for one unit of demand). My heightened appreciation is that it can be the most effective thing to do to take a simple (yes even simplistic) approach to dealing with complex issues. The value for me in taking the simplest of options as possible is that I can better comprehend and observe the consequences of my choices. Hence I am in the better position to take astute secondary actions as events unfold.
  6. Do not give children sticks of dynamite, even if they come with a warning label. Decision tools that are so complex that only a few (or even no one) can comprehend or use skillfully should be used or relied on. These kinds of tools make understanding their inherent U&R very difficult (if not impossible). As a parent and grandparent – I should have learned this lesson better. The difficulty is of course is that to make change or progress means we go out beyond our current competency. How might we think about this? We might consider drawing explicitly upon the second and third principle above when venturing into uncharted territory.
  7. Only Ponzi schemes should depend on confidence, governments should never need to “restore confidence”. Cascading rumours are a product of complex systems (really any social system?). I just love and relish this principle – ideals with the “trust me” BS that we hear from a number of our leaders in all walks of life. The implications on setting organizational values that speak to matters of honesty, integrity and the like seem strikingly parallel to this principle. I don’t know about you, I have always been troubled by organizational value sets that include honesty, integrity and the like – so I appreciate Taleb’s take on this. Besides, to say we value something is to mean that we want more of it (It’s a counting and amassing effort now!). Hence I am bothered by anything that I would be inclined to count in binary terms (honest/dishonest, or has integrity/doesn’t have). Taleb’s principle sets up in my mind the need for me to rethink my views on this “values” subject.
  8. Don’t give addicts more drugs if they are in withdrawal. This is a principle that is well understood by anyone who is familiar with alcoholism. For social and government policy makers this seems unfathomable (e.g., our health/education/whatever system is not working – give us more money). There also seems to be a parallel to the third principle above. Except in this case we are not just looking at endeavour banishment. I have seen many strategies and plans undertaken that have no concept of:  “Under what circumstances would we stop going forward on this?” The whole issue of metrics and leading indicators is wrapped up in the implications of this principle. I also believe because of the mantra of “getting results” (which is just implementation of the objective) is so addictive in our society that we lose sight of the notion of outcomes (“What difference did it make anyway?”). For me the crucible test of any strategy is that did it make a difference when finally operationalized. This principle reinforces my discipline around this.
  9. Citizens should not depend on financial assets as a repository of value and rely on fallible “expert” advice for their retirement. Economic life should be definacialised. We should learn not to use markets as a warehouses of value. This is a principle, I struggle to really understand – what is the option regarding funding pensions and other personal future security needs? For me a parallel circumstance is when governments bury all revenues into “general Revenue” even though funds were collected for distinct programs such as: unemployment insurance, public pensions, transportation investments and maintenance, etc. There is for me a fundamental dishonesty in organizations that don’t keep a proper set of accounts – how do we know if we are over or under contributing? How do we know if we want to keep escalating benefits if the future costs are rising exponentially? How do I know if I see a credible set of accounts? They show the inflow from intake (e.g., revenue and fees) through processing (the figurative “burn rate”),  output (projects accomplished, objectives met), and finally does the audit confirm that the problem was solved/opportunity benefit achieved.
  10.  Make an omelet  with broken the eggs. If a complex system breaks/fails – first aid is not a fix (at best it buys some time). Unless we deal with the causes of system failure we will revisit the disturbing/nasty experience again. Taleb would argue that broken systems need wholesale redesign. Note, this is not a good time to be espousing “let’s practical here!” ideas as these are by default rehashes of what has already proven to go wrong. Knowing when you have to go back to the drawing board is an important indication of sanity (aka by not:  “Expecting different results by doing more of what you have been doing!”).

Taleb crafted these principles concerning the devastating impacts of the global financial meltdown. But I look at these and I can see how several of them can directly apply to the area of TM (principles: 1 – 6, 10). And all of these principles can be applied/adapted in my personal life.

As I get older I have more appreciation for what can go wrong and what I can/must do so I am not “frozen” by the enormity of these possible “wrongs”. At the end of the day, respect for consequences does not equate to becoming incapacitated to act. In fact it is imperative we do act in the light of the enormous range of U&R existing around each decision and action. Taleb’s principles actually enable me to move forward with greater confidence and peace of mind.


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About 123stilllearning456

As a management consultant I am passionately interested in talent management and risk/uncertainty issues. In the area of talent management I propose that we seek strategies that look beyond the staffing/employee centric frames of reference. I have been frustrated at the "closing down on possibilities" by these more conventional staffing/employee centric approaches. I have been impressed where people have found systematic solutions to their talent management issues by going beyond the conventional approaches. In the area of risk and uncertainty, I am interested in making this topic relevant to more normal decision making situations. My conceptual foundation is to use the micro-economist's fixed/variable cost theme. I also think it is important to look at these issues for people through their emotional and psychological lens. As a premise I think risk and uncertainty only exist where there is a person who cares about possible events and its consequences. Hence, risk and uncertainty are social based concepts (no sentience, no risk and uncertainty). A major influence on my thinking in this area is Nassim Taleb of "Black Swan" fame. This BLOG provides me with an opportunity to express my thoughts on topics that interest me. As this is an online diary, content is more important to me than polish. I apologize if this distracts from readers' enjoyment and learning. Still I find this a useful way to live up to my namesake, learn more from others and hopefully provoke creative thoughts and ideas in others.
This entry was posted in Decison Making, Risk & Uncertainty, Talent Manangement. Bookmark the permalink.

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