Posts Tagged ‘Nassim Nicholas Taleb’

Taleb, Kahneman, and…Rajakovich?

April 4, 2013

Ok, so the headline might be a bit deceptive. I was not actually, physically present

Nassim Nicholas Taleb

when these two scholars met. But if we take the meta-universe as our context, then I could…oh, I’ll just move along.

Check out this discussion between Daniel Kahneman and Nassim Nicholas Taleb. Trying to summarize an 80-minute discussion would make me an even larger fool of randomness than I was before, so I’ll just subject you to some of it instead! Cha-ching.

A key point of the discussion centered around the following theme: Size means fragility. In percentage terms, the larger the project, the greater the overruns; the larger the organization, the more susceptible they are to risk of bankruptcy; generally, the greater the degree of centralization, the more susceptible we are to extreme negative outcomes.

Most people will understand this point at some level. Taleb used the example of government, the economy, and large banks. I’ll use the example of decision-making in just about any context. Where one person or a small group of people make decisions from on high without a very good knowledge of the details of a situation, they may make small gains in terms of continuity. They may also cause large problems.

The effect is even worse when the person or group is focused on things that will have little impact, instead of those that will have a large one.


Quick thoughts and links

May 30, 2012

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Taking the lazy way out, here are some links that I found educational. And a couple snarky comments thrown in at no charge.

  • My man Nassim Taleb gets angry with a Bloomberg article. And check out commentary here. Taleb is a sensitive guy, and a bit extreme in his views, but he’s still the man. Even if he was taken out of context, I think his point about the US deficit putting us at risk is an important point, even if I want no parts of the political debate¬† here on the TPS report.
  • WSJ reports on a Booz-Allen study that says that CEO’s hired from within last longer and do better for shareholders. I think there is something to be said for an insider being better positioned to gain support for change. He/she knows who the power brokers are. Plus, it unmasks the prima donna effect – it takes a team and a leader that makes it more about the team than about himself/herself. Having said that, this is a good example of rationalizing after the fact.
  • Taleb talks about the danger of centralization…kinda goes along with the point raised by the TPS report the other day regarding not being able to rationally plan or centrally dictate a “complex” entity such as an economy.
  • Who’s going to win the mobile ads race? I’ve got one idea on how, but clearly, the crowd will make a solid decision.
  • Jeff Haden weighs in on business cliches. He hits home on a couple, and draws a couple shoulder shrugs. Implicit in number 6, “transparency” is a solid message. Leaders that are not upfront or try to hide real motivations are quickly discovered. “Pulling levers” is as ineffective as it is demotivating. On the other hand, face-to-face “telling it like it is” builds trust.
  • Google building Nexus 7 tablet. I’m still happy in my iWorld. Our ability to come up with ways of locking others in has outpaced our rational decision-making.
  • Jason Busch provides some praise for Ariba’s business decisions leading up to its acquisition by SAP.

Dominant logic and bankruptcy

August 5, 2011
Nassim Nicholas Taleb

There's the man. Image via Wikipedia

John Steen has a very good take on why many firms fail. Check it out here. Anyone who has been in a corporate environment, small business environment, or, most likely, any organization will recognize what Steen (and many others) call “dominant logic.”

For many, there is a very well-defined ‘right’ way to do things. Uniformity is an end in itself, and bounds are not pushed. While curing human nature is not likely to happen, I’d propose one way to start is having everyone read Fooled By Randomness by my main man, Nassim Taleb. There will be a quiz, and no, there is no highly organized structure that allows you to read only chapter summaries. Off you go.

How bloggers are fooled by randomness

March 21, 2011

If there is one thing that each of you needs to read it is Fooled By Randomness by Nassim Nicholas Taleb. Some people are hopelessly ensnared by their own frame of reference and are destined to remain fooled by randomness forever. For others, a light will go on, and their perspective will be adjusted.

It is easier to understand the principles of randomness by pointing out when it fools us, so here’s a list of examples that I have seen.

1. Mixing up cause and effect – T. Cummins on the Commitment Matters blog provides a couple examples in one of his most recent posts. Check it out here. In this case, the apparent recent decline in collaboration is due to a decline in trust. So, humans decided 20-30 years ago to stop trusting each other? He mentions greater anonymity, but is there greater or lesser anonymity now than 40 years ago? He also mentions greater competition. So, in the past, people did not strive as hard to make money? He mentions impersonal business relationships, globalization, and lack of concern about the environment. So in the early 1900’s Ford motor company had personal, trusting relationships with its suppliers? The DuPont behemoth violating the Sherman anti-trust act was acting out of a deep-rooted connection with its workers, the public, and the environment? Coal mining companies were less interested in making lots of money and more concerned about the environment in which they worked?¬† Sorry, the good old days argument just doesn’t hold up.

2. Randomness in selecting time intervals – It is not entirely clear, but inferring from the context of the Commitment Matters blog, it seems as though the time horizon chosen is the last 100 years or so. Why is the last 100 years more instructive than the last 50,000? Selecting a recent time interval allows small changes in human behavior to seem large when much of our evolution took place thousands of years ago, not hundreds.

3. Blame America cop-out – If you are an average person in America, you most likely believe that everyone just kind of recognizes that the US is a world leader given the position of power it currently occupies. Having lived in the UK for the last 3.5 years, I assure you that even my last statement will be slightly controversial. However, the tacit acceptance of this position of power comes in the form of blaming the US for some of the ills of the business world such as increased litigation, less collaboration, adversarial negotiating style, etc. What is not clear is why these things have necessarily inserted themselves into the global culture. The US Department of Exporting Bad Business Practices (USDEBBP) is just not that good. There are many causes of trends…created by a system so complex than anyone reducing it to “It came from America!”….um, not much to say to those people.

4. The world is moving faster – may be a sub-set of number 2, but this one deserves its own post due to its having wormed its way into conventional wisdom. We hear phrases like “of course, innovation these days is moving at lightning speed,” and “our lives are so much more hectic than before,” and concepts that make things seem really complex like “mass customization.” How do you think a textile producer in the early-mid 1700’s felt when he used to make textiles starting from raising the sheep through to selling it in the marketplace, and then found himself as only one link in the chain after the introduction of the factory system. How about the farmer that used to measure his day by the sun rising and setting and then began to work in a factory built on the concepts of Taylorism for 12 hours per day? How fast was his world moving? How do you think today will look through the lens of 50 years from now? From our own very limited perspective, it may seem that the world is moving faster, but step off the train for a moment, look at the big picture, and it will tell a much different story. We really aren’t that special.

Contracts for agility and innovation

February 6, 2011

We’ve come a long way in the way we communicate with each other, as evidenced by a recent conversation I had with a friend who is a bit older than me:

Repeat after Nassim - " I will not be fooled by randomness when it matters most"

Sean: Dave, are you familiar with a form of media known as “radio”?

Dave: It sounds familiar…

Sean: Well, there is this piece of equipment that is NOT connected to the internet….

Although methods of communication have undergone step changes, we have a great deal more work to do with the way we do contracts and supplier relationships generally. There is a good blog post on the commitment matters blog that explains how contracting needs to adapt. I remain skeptical of any claim that there is greater volatility in markets now than in the past (one of the ways in which we are often “fooled by randomness“), however, the best part of the argument in the blog post describes a very common situation – the mistake of attempting to be precise in the face of uncertain outcomes.


October 22, 2010

I just listened to the first couple chapters of Fooled by Randomness by Nassim Nicholas Taleb in the car on the way to work this morning. As the title suggests, it explores how we are hardwired into molding history to fit a story that we have developed retrospectively to events, and that the actual event was much more random than we later believe it to be….can’t wait to keep reading.

The best part for me was the discussion of professionally successful people, and how, intelligence-wise, they are not (on average) markedly superior to the rest of us. Hard work and persistence were necessary, but not causal. What was causal? A clue is in the title…

The other important part is that different people have different heuristics, i.e. mental shortcuts for interpreting the data, things and emotions with which they are presented. We like the things that are presented in a way that matches up most closely with our own mental framework, but that mental framework is not shared by anyone else…which is why it is always quite amusing when people quibble over the details of things that, whether they are presented one way or slightly differently, don’t have any effect on the overall meaning.

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