When I was twenty, my hero was Alan Greenspan. I know you might think, who in the world – at twenty years old – has such a hero.
The point is that economists and central bankers are often portrayed by media as the ones that control the economic, therefore personal destiny, of billions of humans. No surprise then, that young men want to become like those heroes.
That is also why I’m not surprised to see young men, in their twenties, which have as the primary aspiration to become just like Alan Greenspan. Of course, the former president of the FED is the scapegoat used for the crisis of 2008.
However, the system itself allows those people to make decisions that influence billions of people without paying the price for their errors.
I was awakened from this youth deception by the book series, Incerto by Nassim Nicholas Taleb. His book, currently available in French (Jouer sa Peau) or Skin in The Game addresses a critical issue of modern society: how we address risk.
In fact, in Taleb’s words, modern bureaucracies have created a militia of interventionistasor men that make decisions for millions of people but then don’t pay the price for their mistakes. In fact, the book moves around three central issues of modern societies.
First, the uncertainty of knowledge and how to filter the BS.
Second, the symmetry in human affairs and why hidden conflicts of interest can be neutralized by having the person making the decision also pay for its errors.
Third and foremost, rationality in complex systems is much more bound to survival mechanisms rather than intricate psychological patterns, as many modern “scientists” make us believe.
When Alan Greenspan was moving the interest rates, he felt that his moves had a direct, clear, and explainable cause-effect relationship on the whole economic system.
Second, they think about low-dimension rather than high-dimensions. In other words, in a complex system, the cause-effect relationships are way more opaque than interventionistas tend to believe.
That is because, in reality, there are hundreds of variables that can influence cause-effect relationships (high-dimensional space). Instead, interventionistas think about a few variables (low-dimension space).
Why is this important at all?
In short, when dimensionality increases (more variables come into play) also, the volume of the space increases exponentially.
Therefore, the data that before was used to describe a phenomenon becomes sparse, thus worthless. In other words, it loses statistical significance.
Almost like a dog chasing its tail, that data becomes useless; that is the “curse of dimensionality.” That is because the data needed grows exponentially with the dimensionality.
What’s the third trait of interventionistas?
That leads to a third point, they think in terms of actions rather than interactions. In a complex system made of interactions rather than actions, the behavior is nonlinear. In short, the same input can produce several outputs based on the state and context.
How to get rid of those interventionistas?
Taleb mentions how in ancient Rome, less than a third of emperors died in their beds.
In fact, most emperors, when declaring war, were also the first ones in line for the war. If the battle got lost, their paid with their lives. Yet that is not how modern society works. Today, those who make decisions aren’t those who take the risk or the ones who pay for their mistakes.
Key Highlights
Interventionistas: The Deceptive Decision-Makers
Youth Aspirations: The allure of economists and central bankers, like Alan Greenspan, as heroes controlling the economic destiny of billions, attracts young men aspiring to follow in their footsteps.
Awakening to Risk: Nassim Nicholas Taleb’s book series, Incerto, questions modern bureaucracies and decision-makers who don’t face consequences for their mistakes, addressing key issues in society.
Three Central Issues:
Uncertainty of Knowledge: Filtering out the noise and dealing with uncertainties.
Symmetry in Human Affairs: Aligning interests with consequences.
Rationality in Complex Systems: Understanding survival mechanisms over psychological patterns.
Traits of Interventionistas:
Static Thinking: Believing in straightforward cause-effect relationships.
Low-Dimension Thinking: Oversimplifying complex systems with few variables.
Actions vs. Interactions: Focusing on actions rather than the nonlinear interactions in complex systems.
Curse of Dimensionality: Increasing dimensionality in a complex system leads to sparse data and loss of statistical significance.
Complex Systems and Interactions: Nonlinear behaviors in complex systems challenge traditional cause-and-effect thinking.
Ancient Rome’s Approach: Taleb refers to emperors who took risks in war and faced consequences, contrasting with modern decision-makers insulated from risks and mistakes.
A Barbell strategy consists of making sure that 90% of your capital is safe, and using the remaining 10%, or on risky investments. Applied to business strategy, this means having a binary approach. On the one hand, extremely conservative. On the other, extremely aggressive, thus creating a potent mix.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the businessmodel. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.
Bounded rationality is a concept attributed to Herbert Simon, an economist and political scientist interested in decision-making and how we make decisions in the real world. In fact, he believed that rather than optimizing (which was the mainstream view in the past decades) humans follow what he called satisficing.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.
Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman in 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
The Dunning-Kruger effect describes a cognitive bias where people with low ability in a task overestimate their ability to perform that task well. Consumers or businesses that do not possess the requisite knowledge make bad decisions. What’s more, knowledge gaps prevent the person or business from seeing their mistakes.
Occam’s Razor states that one should not increase (beyond reason) the number of entities required to explain anything. All things being equal, the simplest solution is often the best one. The principle is attributed to 14th-century English theologian William of Ockham.
The Mandela effect is a phenomenon where a large group of people remembers an event differently from how it occurred. The Mandela effect was first described in relation to Fiona Broome, who believed that former South African President Nelson Mandela died in prison during the 1980s. While Mandela was released from prison in 1990 and died 23 years later, Broome remembered news coverage of his death in prison and even a speech from his widow. Of course, neither event occurred in reality. But Broome was later to discover that she was not the only one with the same recollection of events.
The bandwagon effect tells us that the more a belief or idea has been adopted by more people within a group, the more the individual adoption of that idea might increase within the same group. This is the psychological effect that leads to herd mentality. What is marketing can be associated with social proof.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
