|Image by Gary Larson|
One of his vignettes involves a group of climbers traversing a near-vertical ice-field at high altitude.
Math tells us that smaller groups will have more variation than larger sub-sets of the same population. This even has a name: Regression-to-the-mean.
It is commonly believed that larger groups are more stable than smaller ones, that larger pools in an insurance tranche have less risk that smaller ones, that catamarans are more stable than single hull boats.
The pivotal idea of this post is that low risk = less uncertainty, NOT low risk = stability.
What happens if the "natural state" is failure? Consider the climbers on the near-vertical ice-field. That natural state (considered from a potential energy and friction standpoint) is falling. "Not-falling", although desirable from the perspective of each, individual climber, is not the "natural state".
Math is not egocentric. The climbers assume that "reduced risk" automatically translated to "less chance of a bad thing happening to them, personally". That is probably true when the natural state is "health and prosperity". But math is not egocentric. It has no empathy and it applies regression-to-the-mean just as vigorously in the opposite direction when friction, slope and oxygen deprivation make death the default condition.
The effect of roping all of the climbers together is that when one climber stumbles, the entire team gets dragged to their doom.
Additionally, each climber is more inclined to push past his innate ability because Gunther, Hans, Mario and Luigi have his back. Gunther, Hans, Mario and Luigi think the same and all budget their risk-taking based on a fictional team ability to absorb that risk.
This effect is more common than we care to think.
In corporate life
I recently looked up the financial performance of a company I follow. In all honesty, the company was a dog.
I was stunned to see that its performance was significantly better than the industry average. In fact, it was in the hunt to be one of the very top performers for the industry.
What happened? How did the couch potato become a financial athlete?
They divested their European operations. They sold them to a competitor.
The decades-long thinking had been that when one market (say North America) sagged, other markets would be surging and world-wide sales would smooth the quarter-to-quarter and yearly profits. Investors favor companies with steady performance.
Except it only worked out like that one-year-in-twenty. The other nineteen years the European operations were like the 35-year-old kid who sleeps in the basement, borrows his parents' car keys and has a traffic accident every month.
Finally, a CEO said, "Enough!". The bilge plug was reinstalled and the ship stopped sinking.
It is called "piling on the pork". Any bill that is certain to pass gets additional riders piggy-backing on it.
In personal life
We all have toxic people in our lives who want to "share" the risk they eagerly embrace.
We all have organizations that do the same. They ask us to join. They ask us to volunteer time, treasure and talent.
If things get sporty, those of us who have not already made the tough decisions will have to make them speedy-quick. Who do you let into your life-boat? Who do you toss a flotation device and directions to the closest land? Who do you not even waste a flotation device on?
Just for reference, a general trend I am seeing locally is for grandparents to take in some of the mid-teens. Teens can be a handful for parents. Teens are capable enough to help older grandparents with the more physical parts of living. It is not so much a tying climbers together as it is a balancing of loads.