Monday, January 18, 2021

Spreading risk is not synoymous with greater stability

 Image by Gary Larson
One of the threads that runs through Laurence Gonzales' book Deep Survival: Who lives, who dies and why is how the human brain interacts with the outside environment and how, under certain conditions, will deliver a very wrong answer.

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.

In politics

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.

1. Sometimes grandparents can impart knowledge on the teens that they wouldn't necessarily listen to from their parents.

1. That is a very good point, one that can be expanded to include 'older people other than parents' in many cases. Young people often respond very well to older people when they are treated like adults in those conversations - with all of the respect - and expectations - of that assumption.

2. Just a thought to muddle over, ERJ:

In a multi-generational homestead, where the workloads are well distributed, spreading risk could be associated with greater stability.

For example, where Mom and Dad would react poorly to the risks taken by Junior, Grandma and Grandpa could step in to defuse the situation, more peacefully. Grandma and Grandpa obviously are not on the sheer ice face, tethered to the rest of the family, but their experiences shared contribute stability to the whole.

So the sharing of knowledge, between generations, MAY deliver a not-very-wrong solution.

3. Teens? Not at my house. My patience, understanding and support lasted until twenty's and then it stopped. The ice field example is you only get a single chance. You make it as a group or fail as a group. None of the failures at my house were so severe I couldn't recover from, but, at some point I realized the children were loath to do what I said and really didn't care if they failed in a spectacular display. Has it happens, other relatives decided they should intervene and help the boys. What the relatives fail to see is there is not a shortage of info and good example for the children. The children just flat out won't do what it takes to succeed for reasons known to them. I am confident that if they don't get to many concussions or jail time they will eventually fly right.

1. There are things worse than jail time. Being dead, for instance.

2. greg, now examine the actions of Sgt York, while part of a team, independently took the initiative and claimed victory.

Marcus Luttrell as more recent example.

4. Of the 3 grandchildren we've ended up living with us, 2 of the three came out alright. The youngest is still up in the air, but she's showing Rebel signs. I have high hopes she'll be OK too.

The two youngest are Autistic with one being severe, the other is probably going to talk, and function reasonably well. His older sister is likely going to live at home all her life.

I have said repeatedly that trying to get the generations following the boomers to grab the lefty schemes and run with them is unlikely. Here in Canada, I'm constantly pestered by young people who want to shoot, this is in spite of decades of lefty anti-gun bullshit. When they find out that the gun they wanted to try out, is banned by the liberals, it generally annoys them and specifically when I tell them that there is no reason for the ban. It doesn't create an instant conservative, but they sure question other BS nonsense, and I'm there to provide an opinion, generally not very supportive of the left.