This article is conceptually largely stolen — or rather inspired. Some time ago I studied fractal geometry for reasons not relevant or interesting here, and I came across Nassim Nicholas Taleb via Benoit Mandelbrot, who can be called the founder of this mathematical theory. In Taleb’s bestseller “The Black Swan” he describes at an early stage (in the first or second chapter) the “triplet of opacity”.
Taleb uses this theoretical construct to express his scepticism about the uniqueness of the origin of historical events. He says that history is „opaque” to the human mind because we see only the events and results and not the origin or mechanism behind them. He describes a triplet because he identifies what he calls opacity with three factors based on the human mind and its characteristics:
- The illusion of understanding a historical event, although everything may be much more complicated and random than it seems in retrospect.
- The deformity of events in retrospect, which means that events are judged differently in the end than they were when they occurred.
- The illusion that based on factual informations either authoritarian or intellectual people are able to predict future events.
I now try to apply my interpretation of Taleb’s concept to everyday business and hope that it leads to some insight (at least for me). What I am not trying to do in particular is a theoretical reconstruction of the considerations. Perhaps you could say that I have read something and interpreted it, and the interpretation has inspired me. That feels like knowledge and therefore pretty good. At least it’s part of a discourse. In any case, the book is a clear recommendation to buy.
CHANCE AS A DECISIVE FACTOR
Regarding to the first assumption, I can think of a story. As a part of my diploma thesis I was privileged to conduct a series of interviews. The topic was the geographical concentration of the wind energy industry in Germany and among other things I tried to find out which factors led to the settlement and growth of relevant companies in the industry at certain locations. The story is as follows:
In the 1980s, a farmer from northern Germany was informed of the death of his aunt living in Switzerland. She had left him a considerable part of her fortune. However, he could only take up his inheritance if he invested half of the money in the renewable energy production. Now the farmer knew that there was a salesman in Husum (a small german town at the coast of the Northern Sea) from a Danish company that sold agricultural machinery and wind turbines. So he drove his tractor to Husum and bought a wind turbine. What he and other farmers then noticed was the fact that the operation of such a turbine was financially rewarding. The demand for wind turbines increased around Husum and the location became an important centre for the wind energy industry in Germany. Chance (in this case: the conditions of the inheritance) was therefore a crucial success factor here.
Hardly anyone would have predicted this development in such a way. And so it is a good example of Taleb’s first factor that there is an assumption that our circumstances seem more understandable, explainable and predictable than they really are. In recent years, we have seen some major developments, particularly in global politics, that no expert would have predicted. Prominent examples that come to mind spontaneously include Brexit and the election of Donald Trump as President of the USA.
If you take this hypothesis into your day-to-day business and at the same time assume that you are in fact right, then the majority of companies waste huge resources, especially human resources, on estimating the future development of markets, developing strategies and making plans. The result is that you act in fake securities that have no higher relevant added value for the success of companies. I will not deny that liquidity planning and corporate strategies are useful instruments, but, following Taleb, I would like to say that we often pretend that we are able to estimate future events well, even though it is not true.
I find this particularly interesting from a psychological point of view. Why do so many professional experts in business feel attracted by strategies and plans and often use them as the most important basis for far-reaching business decisions? I wonder whether companies with a more flexible attitude — especially in top management — are actually more effective and successful.
FOG ON BOTH SIDES
Taleb’s second assumption is that in retrospect the brain likes to play tricks on us when it comes to interpreting past events. In hindsight, so to speak, we choose the facts that supposedly or with high probability led to a particular event. We think we can make the world explainable in this way. The double-edgedness is obvious, because we give ourselves up to the illusion of being able to explain the past and even more dramatically, that we believe we can better estimate the future on this assumption.
In business terms, our brain tends to explain certain economic and strategic events that have had an impact on a company’s performance or environment. It combines the appropriate political decisions, market changes and decisions made into a retrospective mix of causes. If you believe Taleb’s theory, this is misleading, because the real complexity and above all the unpredictability of certain events are not considered.
CALMNESS AND ADAPTABILITY ARE MORE IMPORTANT THAN EXPECTED
This leads directly to the third assumption, which states that it will be even worse if we plan the future on the basis of these less than valid explanatory patterns and base essential company decisions on them. If you deepen this thought on the entire knowledge gained from experience, you will always find yourself in the area of false security if you try too hard to explain the things that are the past and you should beware of using them as a basis for the future. It is therefore important to find the fine area that enables you to learn from the past and use your experience for the future without relying too much on the thought that the assumptions are correct.
Perhaps you have to face not only life but also interpretations and decisions made with authority or expert knowledge with a certain degree of calmness.