Robustness and Fragility – Part 3

Unserstanding the debt metaphor
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Continuing with Taleb’s treatise on robustness and fragility:

After the crisis, people asked me what we should be doing. The logical conclusion is to stay as far away as possible from certain exposures that make you Black Swan prone. The first is debt.

If we take financial debt as a metaphor and ask what aspects of the debt can be mapped across to the mind, we get some interesting connections.

Why do people go into debt? Because they want the end result or payoff now. With financial debt it is usually clear what the cost is – the amount and duration of the interest payments – but I wonder how many of us do this kind of calculation before going into ‘mental debt’? For example, when we say “yes” to instant gratification, [1] what is the cost to our own trust-worthiness? To our self-respect? To our confidence that we can say “no” next time?

We borrow from people’s good nature. We take loans from their kindness. Healthy relationships depend on fairness and reciprocity.

Financial debt can accumulate until, in the extreme, we go bankrupt. Sound familiar? Now substitute the energy some people expend at work, slowly draining their reserves, running faster and faster to stand still, until finally they breakdown. Eventually illness says, “Enough!”.

How do people get into debt over their head? Because they turn a blind eye to what is happening. Busted: Life Inside The Great Mortgage Meltdown by Edmund L Andrews is a candid account of how one man got deeper and deeper into debt, almost losing his wife and his home in the process. What makes this a valuable story is Edmund Andrews is no ordinary patsy. He was a reporter for the New York Times who for six years was the paper’s chief eyes and ears on the American Federal Reserve. He even wrote several early-warning stories about the spike in high-risk mortgages. Yet none of this prevented him “glossing over the fact that we’d been spending $3,000 more than we were earning, month after month.” Not only had he borrowed from the bank, he had been withdrawing his wife’s trust – until she finally snapped.[2]

Like Gregory Bateson, Taleb exhorts us to:

learn from Mother Nature which is designed to be robust to Black Swans. It has reserves; the exact opposite of debt.

While ‘robust’ means: strong and healthy; vigorous; of sturdy construction, I believe, Taleb is mainly referring to ‘resilience’, the capacity of a system to withstand or overcome adverse conditions.

There are two type of redundancy, and nature has them both. Nature has spare capacity. We have two kidney’s, when one would do. But Nature also has spare functionality. If we can’t speak we can use sign language. if we lose a limb the idle part of the brain gets recruited to do something else. And, things that we used for one purpose get co-opted for other things and new adaptations appear. Nature is a master at maximising serendipity.

Nature also likes connectivity – but a certain kind of connectivity. While six degrees of separation is the number that has caught the imagination, in most natural systems, such as the brain or an ecosystem, it is more like three. And that doesn’t mean twice as connected, it means several orders of magnitude more connected. However, more is not necessarily better. Nature likes small world networks. These have a high degree of localisation, with bridges (weak links) between local concentrations. That means failures in the network are contained and do not bring the whole system to its knees.

Nature has evolved ways to balance supply and demand; droughts occur but species expect them, and thy lie low until the rains come. Overtime ecosystems survive because they are in dynamic equilibrium. Because of the spare capacity and interconnectedness they can adapt. They can change to preserve themselves.

Nature has ‘requisite variety’. As Ross Ashby explained, systems with the largest variety of actions available to them are able to compensate for the largest variety of things that disturb the system. In other words they are able to accommodate a large range of (unforeseen) circumstances and hence maintain their existence. Requisite variety requires redundancy. Cutting to the bone may look more efficient in the short term, but when that Black Swan comes a-calling, those exposed bones will look mighty fragile.

None of us can know for sure how we will react psychologically in a new situation, but we can prepare for unpredictable mental Black Swans by building up our reserves, our connectedness, and our requisite variety.

Continued in Robustness and Fragility Part 4

1 For more on instant and delayed gratification see The Road Less Traveled, M. Scott Peck.

2 See also ‘Edmund L Andrews on his own $500,000 credit meltdown‘, Edmund L Andrews, The Guardian, 11 July 2009.

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