The upside to randomness?: systems using volatility to their advantage
Wind extinguishes a candle and energizes a fire. Likewise with randomness, uncertainty and chaos: you want to use them not hide from them - Nassim Nicholas Taleb, Antifragile: Things that Gain From Disorder.
Order and organization are alien to nature. As Benoit Mandelbrot put it in the Fractal geometry of Nature: mountains are not cones, sand grains are not smooth surfaces and clouds are not spheres. Natural systems and subsystems are predominantly fractal and to a large extent messy and not linear.
This messy and fractal picture of nature (and reality) is of course by a great artist called randomness aka chaos. The artist’s biography is explained well by Lorentz in the chaos theory inspired writing on the butterfly effect.
However, for the sake of this article we will begin with the illustration of chaos given by Stephen Hawking in his book called A Brief History of Time. Then we’ll see how to some systems take advantage of randomness and volatility while others crumble to the ruthlessness of this duo.
Increasing universal entropy
To understand chaos or entropy, it is only wise to look at a part of the continuum it happens within; time. I won’t digress to the details of time in this essay. Regardless, one thing’s for sure, you and I likely agree that time moves forward (yes, cancel that trip to 1996 and focus on this article!). As Hawking Puts it:
[…] why we don’t see broken cups gathering themselves together back unto the table is that it is forbidden by the second law of thermodynamics. This says that in any closed system disorder, or entropy, increases with time. In other words, it is a form of Murphy’s law: things always tend to go wrong!
You might be tempted to assume it’s just our perception ordering events in our minds. But this is forged in the laws of our physical universe bringing us to an interesting realization of the all encompassing nature of chaos that is apparent if we look at things from a broader than individual scale:
As you read this article, entropy is all around you. Cells within your body are dying and degrading, an employee or coworker is making a mistake, the floor is getting dusty, and the heat from your coffee is spreading out. Zoom out a little, and businesses are failing, crimes and revolutions are occurring, and relationships are ending. Zoom out a lot further and we see the entire universe marching towards a collapse.
- Shane Parrish Farnam Street Blog.
Rivers of money, stability and novelty.
Now with the understanding that randomness increases with time, it is vital to understand how various agents (ecological and economic) react when exposed to different doses of randomness in their natural settings. The computer scientist and philosopher Kevin Simler describes human and non human communities (e.g. the internet or a natural forest) as niches.
Hostile and unstable (volatile) niches are characterized by a diversity of agents making the ecosystem healthy and rich and less susceptible to annihilation from rare but harmful events. This is similar to economic systems where volatility flushes out weak players making the collective stronger than before. However, abundant ecosystems with stability are likely to be characterized by low gene diversity and hence dominated by a few specialized species (80/20 rule style). This makes the ecosystem vulnerable should a catastrophic and unpredictable event occur.
To easily understand the relationship between volatility and the ecosystem the metaphor of rivers of money as cash flows suggested by the author Venkatesh Rao serves as a great resource. He points out that when the cash flow is stable in a particular system the agents therein tend to go complacent making them vulnerable to black swan events:
Organizations are like riverbank communities. The stability of the river, not the attitudes of people, is what makes old organizations seem set in their ways. Perhaps people resist new ideas not because they have specific personalities, but because they have settled on the banks of a river of money of a certain age. Tax rivers are among the oldest and most stable rivers of money (and the only ones protected by the threat of legitimate force), and people attracted to government work aren’t exactly known for being passionate champions of creative destruction. [Emphasis mine]
- Venkatesh Rao Ribbon farm
As we can see, volatility is essential in ecosystems as it is significant in economies. Startups and business face hostile randomness-filled environments as they are not stabilized by stable funding from taxes and other sources of government revenue. This eliminates the weak entrepreneurs making the remaining players cautious of actions that led to the financial demise of their counterparts. In a nutshell, volatility allows for stressors that are informational to the remaining agents after eliminating the complacent ones in rare events.
How to benefit from volatility
- Reduce opacity (shades on)
With chaos as an inevitable reality, it is dangerous to assume a mastery of the universe. However, one can employ the use of models to reduce the opacity that comes with randomness. Think of it as wearing glasses that clear out the clutter of chaotic things, or as maps to navigate the seas of randomness. It is however essential to use the right map in the right sea. In most of my endeavors in an ecological modeling domain, I use fuzzy inference systems to make sense of complex, uncertain and imprecise datasets. It is generally relevant to make use of mental models as they act as blinkers that enable race horses to focus on the track than a wide field of view.
2. Bottom up tribal systems than the reverse
The conventional top down approach in social systems deprives them of the volatility they very much need. To accentuate this point, think of hunter gatherer communities who had a horizontal structure than a vertical one. In the former case, the members of the community are empowered to gossip and connive or plot against their leaders whose stay as leaders is based on merit like hunting skills or the leader’s capacity to put the interests of the community ahead of his. The later on the other hand is characterized by a hierarchy with an untouchable human at the top.
However, unlike the tribal counterparts, these conventional top down setups are more often than never led by a human lacking skin in the game (doesn’t put their neck out at all). The point here is, volatile environments lead to more decentralized social systems yet those denied of volatile environments likely result into a more hierarchical and unnecessarily bureaucratic leadership. It is no wonder that the most successful revolutions were influenced by well coordinated small, flexible and volatility-friendly structure of guerrilla warfare and the fragility of complacent governments numbed by their stability and hold of the masses.
Revolutions are usually made by small networks of agitators rather than by the masses. If you want to launch a revolution, don’t ask yourself, ‘How many people support my ideas?’ Instead, ask yourself, ‘How many of my supporters are capable of effective collaboration?’ The Russian Revolution finally erupted not when 180 million peasants rose against the tsar, but rather when a handful of communists placed themselves at the right place at the right time. In 1917, at a time when the Russian upper and middle classes numbered at least 3 million people, the Communist Party had just 23,000 members. The communists nevertheless gained control of the vast Russian Empire because they organised themselves well.
3. Reboot but keep a backup
Organisms have natural way of refreshing their gene pool: dying after letting their genes (coded information) into payloads called offspring. This process is necessary for reducing internal entropy or chaos accumulated by the individuals. A similar process can be observed in computers which accumulate chaos overtime. This can be in the form of bloatware and cache files that slow down your system. So rebooting or clearing these many files refreshes the system as a whole by loosing a subset of the chaotic clutter. Now for my favorite part part:
Why be the fire?
- Adaptation and resilience are post facto.
Most academic papers and global institutions/frameworks/policies advocate for resilience or adaptation. The fact that these advocated concepts are only possible after an unpredictable harm is already done makes them less useful compared to systems that feed off of the same rare event to get better than return to an initial state. Further, it is okay to return to an initial state after a catastrophe, but this makes sense in closed systems without incremental chaos. The downside to this lies in the fact that it is not how natural systems work. Little harm to natural systems make them better off than making them return to their pre-stressed state. I mean, think about it there would no weight lifters if human muscles returned to their initial size and strength than improving from the little harm of microtears.
2. The beauty of mortality lies here.
Life is the roommate of death, says Lawrence. If you think about it, most of humanity’s achievements have been directly or indirectly motivated around the presumably polar concepts of life and death
- Religions all across the world emphasize life after death or some paradise if their life before death was lived according to some accepted standards.
- Humanity as a species is constantly innovating in medicine and related fields to increase life expectancy, another word for death delaying for most of its population.
- The death of a subset of people has always lead to information evading the reasons that caused them in the first place. Basically if we were immortal as a species I bet we would never have understood our gastric systems or even the most basic anatomy. I am basically implying death has made a lot of life saving science discoveries possible.
3. Amor fati
The love for volatility engages one to basically enjoy the events that randomly come to them. Think for instance, if you had to predict the day you met the love of your life, I don’t think it would be as excited about it than if you had bumped into them. This love for volatility eases the process of loving one’s fate (amor fati) as the stoic Emperor Marcus Aurelius put it:
Remember: Matter. How tiny your share of it Time. How brief and fleeting your allotment of it Fate. How small a role you play in it
