culled from:https://www.stat.berkeley.edu
How stable is your situation? In today’s world the sophisticated businessperson can feel comfortable in believing their situation is secure because they have a high degree of connectedness both personally and in their line of business. The irony is this interconnectedness not only helps achieve high levels of success but also contributes to catastrophic downfalls. It has to do with the fact that systems with a high level of interconnectedness (complex) of and by themselves generate high-impact, random events. Let’s explore.
Black Swans
In his book, Black Swan, the author, Nassim Teleb talks about how the belief in stationarity (sustained, stable outcomes) in a complex situation leads to blindness, which can yield catastrophic results. A good example of this is the collapse of the home mortgage market in the United States. By now everyone is familiar with the financial bailout required for institutions such as AIG. The underpinning to this catastrophic failure was based on a concept statisticians call stationarity, i.e., the belief that consequences will continue to flow as anticipated. The fact is, with the growth of interconnectedness and markets the probability of random, dramatic events increases accordingly.
Randomness
In an earlier blog chaotic systems were defined as those having deterministic, interrelated rules producing nonlinear, unpredictable results. In other words, the results are non-stationary. So, in times of failure complex systems may provide avenues of hope. On the flipside, periods of success may be transitory.
Risk Management
For those of you familiar with my writings you may have noticed how often I refer to the value of risk management in complex situations. The reason for this is based on the reality of complex systems. The reason is simple. It is identical to what the superpowers realized when it came to the use of nuclear arms. The worst case is intolerable. If financial institutions would have thought this way the recent recession could have been avoided. The problem is success risks breeding blindness in a form called “The Midas touch.” Essentially, when one suffers from the Midas touch they believe that the current string of successes will continue in an unending fashion.
Your Career
So what does all of this have to do with your career? The answer is, “Plenty.” One way to view this is to look back upon your career development. Take out a copy of your resume and list the events, especially the small ones that led to where you are now. You will notice that black swans have probably had a major impact; impacts far exceeding anything you could have planned. For example, there is the chance encounter with someone who provided that slight bit of leverage that made all the difference–the difference that led to a promotion or being fired. What helped you move forward was your degree of preparedness, which amplified positive events or dampen the consequences of a negative one. That is risk management.
The moral to this is remembering to practice a form of cognitive dissonance and learn to carry two streams of thought simultaneously. The first one deals with the best that could happen under the circumstances and the second deals with the worst. While carrying these two frames of mind learn how to make decisions. It is this discipline that helps underpin career success. It is the absence of this discipline that leads to being a reactive follower and settling for crumbs.
