Posts Tagged ‘strategy’
“I sensed myself in the presence of something I didn’t really know how to handle, didn’t understand.”*…
Bill Janeway, with sage advice– for businesses, but easily extensible to our personal lives– on how to live, and succeed, in an environment of radical uncertainty…
… From John Maynard Keynes at the University of Cambridge 90 years ago through Robert Lucas at the University of Chicago in the mid-twentieth century, economists have placed expectations at the core of market dynamics. But they differ on how expectations are formed. Are the data we observe the outcome of processes that are as “stationary” as physical laws, like those determining the properties of light and gravity? Or do the social processes that animate markets render future outcomes radically uncertain?
For a long generation starting in the 1970s, Lucas and his colleagues dominated economic theory, giving rise to different strands of Chicago School economics. While the Efficient Market Hypothesis asserted that prices in financial markets incorporate all relevant information, the Real Business Cycle Theory of New Classical Economics held that the macroeconomy is a self-equilibrating system whose markets are both efficient and complete. The system may be subject to external shocks, but it is not amenable to fiscal or monetary management.
This assumption of complete markets implies that we can overcome our ignorance of the future. It suggests that we could, at any moment, write contracts to insure ourselves against all the infinite possible future states of the world. But since perfect, complete markets obviously do not exist, the Chicago School’s Rational Expectations Hypothesis (REH) proposes that market participants will guide their forward-looking decisions by reference to a (generally implicit) model of how, on average, the world works and will continue to work. As a result, expectations will be tamed and aligned with efficient market equilibria.
For their part, Kay and King look further back to the pre-REH period, when Frank Knight and then Keynes correctly showed that our ignorance of future outcomes is inescapable. As Keynes famously put it in 1937:
By ‘uncertain knowledge’ … I do not mean merely to distinguish what is known from what is merely probable. … The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention, or the position of private wealth owners in the social system in 1970. About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know.
The shockingly unanticipated Global Financial Crisis of 2008 brought this insight back to the fore.
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The central question remains: Where can we find guidelines for mitigating the consequences of radical uncertainty? What basis is there for purposive action in the face of “We simply do not know”?
I see three paths forward. The first two are defensive, and the third is proactive. All three reject an exclusive focus on efficiency in the allocation of resources. Thus, they stand outside what remains the dominant paradigm of mainstream economics.
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Success in the real world demands a recognition that the future is unknowable. Three strategies: “What to Do About Radical Uncertainty,” from @billjaneway in @ProSyn. Eminently worth reading in full.
* James Baldwin, Sonny’s Blues
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As we contemplate complex contingency, we might recall that it was on this date in 1910 that George Herriman‘s signature characters, Krazy Kat and Ignatz Mouse, made their first appearance in the bottom of the frames in Herriman’s The Dingbat Family daily comic strip. They got their own strip three years later, scored a Sunday panel in 1916– and delighted readers with the surreal philosophical questions they raised until 1944.
“Oops, I did it again”*…
(Roughly) Daily has contemplated game theory a number of times (e.g., here). The Generalist Academy offers a particularly poignant example…
Football [or, as it’s called in the U.S., soccer] has a lot of strange rules – like Ted Lasso, I still don’t understand exactly how the offside rule works. But the basic game is pretty simple: get the ball into your opponent’s goal, and prevent them from getting the ball into your goal. Scoring a goal against your own side is a rare and accidental embarrassment. Usually.
The qualification round for the 1994 Caribbean Cup had some unusual rules. No match could end in a draw; if the teams were tied at the end of regular time, they would go into sudden death extra time. But! Any goal scored in extra time would count as two goals. This was presumably done because this tournament, like many, used goal difference to break ties in the qualifying groups. (Goal difference = total number of goals they’ve scored minus the number of goals they’ve conceded.) So that extra time “golden goal” would give a team an edge in the overall competition. Little did the organisers know that it would also lead to one of the strangest football games ever seen…
A truly remarkable match: “Own-Goal Football,” from @GeneralistAcad.
* Britney Spears (Songwriters: Martin Max / Rami Yacoub)
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As we work backwards, we might send carefully-calculated birthday greetings to Félix Édouard Justin Émile Borel; he was born on this date in 1871. A mathematician (and politician, who served as French Minister of the Navy), he is remembered for his foundational work in measure theory and probability. He published a number of research papers on game theory and was the first to define games of strategy.
But Borel may be best remembered for a thought experiment he introduced in one of his books, proposing that a monkey hitting keys at random on a typewriter keyboard will – with absolute certainty – eventually type every book in France’s Bibliothèque Nationale de France. This is now popularly known as the infinite monkey theorem.
“Advantage! What is advantage?”*…
Pradeep Mutalik unpacks the magic and math of how to win games when your opponent goes first…
Most games that pit two players or teams against each other require one of them to make the first play. This results in a built-in asymmetry, and the question arises: Should you go first or second?
Most people instinctively want to go first, and this intuition is usually borne out. In common two-player games, such as chess or tennis, it is a real, if modest, advantage to “win the toss” and go first. But sometimes it’s to your advantage to let your opponent make the first play.
In our February Insights puzzle, we presented four disparate situations in which, counterintuitively, the obligation to move is a serious and often decisive disadvantage. In chess, this is known as zugzwang — a German word meaning “move compulsion.”…
Four fascinating examples: “The Secrets of Zugzwang in Chess, Math and Pizzas,” from @PradeepMutalik.
* Fyodor Dostoyevsky, Notes from Underground
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As we play to win, we might recall that it was on this date in 2011 that scientists involved in the OPERA experiment (a collaboration between CERN and the Laboratori Nazionali del Gran Sasso) mistakenly observed neutrinos appearing to travel faster than light. OPERA scientists announced the results with the stated intent of promoting further inquiry and debate. Later the team reported two flaws in their equipment set-up that had caused errors far outside their original confidence interval: a fiber optic cable attached improperly, which caused the apparently faster-than-light measurements, and a clock oscillator ticking too fast; accounting for these two sources of error eliminated the faster-than-light results. But even before the sources of the error were discovered, the result was considered anomalous because speeds higher than that of light in a vacuum are generally thought to violate special relativity, a cornerstone of the modern understanding of physics for over a century.
“Disruptive movement must come from within”*…
Disruption can be the engine of deep and rapid change to industries, political systems, or indeed societies. As COVID reminds us, some of those disruptions are involunatry. But many aren’t. Indeed, on the back of champions like Clayton Christensen and his promotion of “disruptive innovation,” disruption has become a go-to strategy– if not the go-to strategy– for entrepreneurs (and some intrapreneurs) around the world. And it has begun to define the strategies of social and political actors/movements as well.
Disruption can be a powerful approach to solving problems that have been allowed to fester (e.g., in-grown, oligarchical markets; climate change.) But Santiago Zabala warns us that as disruption has become more dominant, it risks losing any purpose beyond simply “winning” the game (the market, the election) in question…
… “disruption,” according to its Latin origin, signifies “rupture,” tearing apart, and violently dissolving continuity. As a metonym for progress, since the nineties it has spread the illusion that innovation is always an improvement regardless of its social consequences. Its association with Silicon Valley and business culture in general has led us to disregard the reckless adverse effects of progress without responsibility. In fact, this indifference is vital to understanding the meaning of disruption and our fascination with a notion that is constantly deployed to exploit our hope that innovation will save us. “Disruption,” as Bernard Stiegler noted, “radicalizes the reversal of all values,” whether technological, political, or religious.
Like other concepts whose meanings are eroded by overuse, such as nihilism, postmodernism, and populism, disruption requires a philosophical elucidation. In recent decades, technological disruptions were heralded as collective life-shaping events, but is necessary to question this disruption is seen as a value worth pursuing even though its worship is tearing apart the possibilities for a sustainable future…
Disruptive innovation, as [historian Jill] Lepore illustrates, holds out the hope of salvation from the very damnation it encourages because the idea of progress has been stripped of the aspirations of the Enlightenment. The West in the eighteenth century embraced the idea of progress; in the nineteenth, evolution; and in the twentieth, growth and innovation. And the problem today is that the idea of disruption dominates the rhetoric of not only Silicon Valley but also other industries and contemporary societies all over the world. Disruption has taken over as a common language in which to project not just success but also a future of unforeclosed possibilities. This success is premised on technology’s capacity to continuously offer cheaper alternatives to established products—and on the promise that innovation is always an improvement, regardless of its consequences.
Disruptive innovation in journalism, education, and medicine has emerged as an all-purpose replacement of traditional methods with new ways that value novelty and speed. This valuation of progress without quality has allowed these pillars of democratic nations to be further subverted by capital, prey to market drives that ignore the value of the product for the value to shareholders. The belief that companies and industries that failed were somehow destined to fail is at the heart not only of Christensen’s concept of disruptive innovation but also of a neoliberal age that holds that government should play no role in restraining corporate behavior. Giving corporate behavior a free pass has facilitated the application of disruption’s indifference to arenas that affect society, politics, and culture. Numerous conferences, centers, summits, and labs established even in just the most recent decade demonstrate that “disruptive” has become an admiring adjective, a positive valence, even a brand.
In order to resist disruption it is not enough to demonstrate that its benefits are based on shaky evidence. This has been the approach taken by Lepore (“Christensen’s sources are often dubious and his logic questionable”), Michael Porter (“disruptive technologies that are successful in displacing established leaders are extremely rare”) and Andrew A. King and Baljir Baatartogtokh (“only seven of the 77 business case studies covered by Christensen’s fit his own criteria of what constitutes disruptive innovation”), among other scholars. While these analyses are useful to debunk the illusion that innovation is always an improvement, they do not modify the widespread enthusiasm for it. “Exaggerated claims for disruption,” as Mark C. Taylor points out, “usually result from a failure of memory, which is symptomatic of a preoccupation with the present in a culture addicted to speed.”
This addiction can be overcome by thinking through longer stretches of time…
… and the social and cultural hopes and values that should guide us. Disruption can be a force for altogether positive and overdue kinds of change… but only if its aims are higher than simply the bottom line.
A critical look at what we talk about when we talk about “disruption”: “Disruption: Neither Innovative nor Valuable,” in @LAReviewofBooks.
See also: “‘Disruption’ Is a Two-Way Street.”
* Leo Tolstoy
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As we contemplate change, we might recall that it was on this date in 1920 that a disruptive force was named and energized: Adolf Hitler delivered “the Hofbrauhaus speech,” in which he gave a crowd of nearly 2,000 members of the German Workers’ Party a twenty-five point platform and a new name– the “National Socialist German Workers’ Party,” or Nazi, Party.
Hitler was, at the time, the head of publicity and propaganda; the next year, he became the Party’s head. The event was sufficiently momentous that the Nazi Party celebrated it founding at the Hofbrauhaus each year thereafter.
“We only have what we give”*…
There’s a great deal of concern over whether or not the new tax bill will decrease charitable giving in the U.S.; as noted below, it’s painfully well grounded. But there may be another threat to not-for-profits on the immediate horizon: competition from politics…
In very late 2016, following the election, and continuing into 2017, there was a surge in donations to not-for-profits like the ACLU, public broadcasting stations, Human Rights Watch, and the Sierra Club– organizations that addressed concerns that donors worried would be given shorter shrift in the new administration.
American individuals, estates, corporations and foundations donated a record US$390 billion to charitable causes in 2016. [It is too early to know the tabulation for 2017.] Total giving grew 1.4 percent, adjusted for inflation. Donations from individuals amounted to nearly three-quarters of all giving and grew more than giving by foundations, corporations or bequests with a 2.6 percent gain to $282 billion…
We have, however, witnessed a shift in giving to groups devoted to animal welfare and environmental issues, as well as international affairs. These categories were so small that we couldn’t track them until 1987.
While they still draw less support than others – religious groups, at $123 billion, and educational institutions and organizations, at nearly $60 billion, still top the list – animal welfare and environment groups and international affairs organizations made big strides in 2016…
But as a result of the new tax bill, Dr. Rooney
But that may not be the whole story. Even as charitable contributions are under pressure, political contributions look poised to rise. They were already astronomical: 2016 contributions to presidential campaigns were over $2 billion; congressional (Senate and House) races brought in over $4 billion; and state-wide races, over $1,5 billion (all, new highs, and all not counting an unmeasured amount of soft/dark spending).
2018 will, of course, be an election year– one for which interest and momentum are already building. It’s not a presidential year, of course; still, it promises to be a big one. There’s every indication that Democrats are readying to field a record number candidates at every level in the mid-terms, and to fund them at record levels. At the same time, it seems clear that Republicans are preparing to match their efforts. Which is to say: while there remain concerns about voter engagement, there’s every indication that there will again be an increased level of contributions to the campaigns.
So, the new tax bill is likely to reduce funding to not-for-profits, at the same time that political concerns are likely to make a greater demand on the “giving budget” of Americans.
Research conducted on the 2012 election (pdf), suggest that a donor’s political contributions do not decrease his/her charitable giving. And with luck, that will hold true through 2018. But the amounts in question, on both the charitable and the political fronts, continue to rise dramatically… and at some point, there is a limit to the amount that an individual can or will give– especially if that individual is not a member of the 1%… Those not-for-profits that experienced a “Trump Bump” in their funding in late 2016 and 2017 might find that, with the double-whammy of the new tax bill and “competition” from politics, they are facing head-winds in 2018.
I am a scenario planner by trade; I’ve learned the wisdom of contemplating all of the scenarios– the plausible futures– that we might face in order to be ready for any of them. We certainly hope that there’ll be no hit to charitable contributions; but if this dark scenario unfolds, what do we do?
For the smaller donors who were the backbone of the Clinton and (before that, the Sanders and Obama campaigns), many of whom re-directed their support to charities after the 2016 election, there may come a set of choices: First, for the many who will no longer itemize, do I continue to contribute though now I can no longer deduct the gift? And second, for all, a Hobson’s Choice: do I give to support the non-government organizations stepping in to try to fill needs (services, advocacy) from which government is retreating, or do I support an effort to reconfigure the government so that it pre-empt/address those needs? The obvious right answers are “yes” and “both,” which may well require all of us to stretch to, if not beyond, the limits of our capacity to give.
For not-for-profits, this a moment to be cautious. Dr. Rooney’s warning notwithstanding, it may be that Americans have the capacity to sustain their increased contributions at the same time that they increase their political giving. But the strategically-robust position is to assume that they cannot, and to make plans– if only contingency plans– for level, even reduced contribution income.
Hope for the best; prepare for the worst.
* Isabel Allende
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As we dig deeper, we might celebrate Dr. Martin Luther King Jr. on this day marked in his honor. The holiday was established in 1983 when President Ronald Reagan signed the bill creating this federal holiday. Reagan had opposed the holiday, citing its cost, joining southern Republicans like Jesse Helms, who were more naked in their reasoning; but the enabling legislation had passed by a veto-proof margin.
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