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April 10, 2019

Complexity Rules

Spring 2019by: Jaffer Ali
(Originally Published: April 5, 2019)

"No man ever steps in the same river twice, for it's not the same river and he's not the same man." - Heraclitus

I have been an entrepreneur since I was 22 years old. My educational background was unremarkable as I studied business at the University of Illinois. There was only one topic or course in the school of business that interested me; "Decision Making Under Conditions of Uncertainty." This was way back in the late 1970s.

The topic was interesting but the mind numbing approach of the professor seemed completely odd to me at the time as he was obsessed with drawing decision tree diagrams and assigning probabilities at each branch for every outcome emanating from "decision forks". The goal was to arrive at some overall probability for making decisions. The topic stayed with me long after discarding his attempt at dealing with uncertainty.

I took a year off after graduating and then enrolled at Arizona State University with the goal of becoming a professor of political philosophy. My father at the age of 49 had a heart attack and stroke. These circumstances resulted in trading a future career as an academic with taking over managing the family restaurant. My father was very ill and I was struck at how he was treated. Doctors gave him one medication which affected something else...and his lung doctor was at odds with his cardiologist which was at odds with his neurologist.

My father's condition was spinning out of control. Everything in the human body was interdependent except no doctor at the time seemed to understand how each of their decisions affected my father as a patient. This was my first understanding of complexity rules.

I did not have the vocabulary to articulate what my father was experiencing. I eventually learned that "spinning out of control" was something called the "cascade effect." Or put another way, 2nd and 3rd order effects. There was at the time an inability to predict what effect each treatment was going to have on my father. He died within 18 months.

From Arab Spring to Gilets Jaunes

In 2010 a man set himself on fire in Tunisia protesting a local official confiscating his vegetable cart. This event has largely been credited with sparking the region wide Arab Spring. The interesting thing is that nobody predicted Arab Spring. Literally hundreds of millions of dollars are spent annually trying to read the tea leaves to predict political outcomes in the Middle East.

Was the man in Tunisia like the butterfly flapping its wing in China causing a hurricane in Egypt? We live in an interconnected world with information flowing in every direction. Who can predict with any degree of confidence what the 2nd and 3rd order effects will be regarding human behavior? Of course, people try and often fool themselves that they have a crystal ball after one of their predictions survives to become reality.

Much of what is served up as political insight in modern media-as articulated by reporters, political operatives, academics and assorted gurus-is... B.S. - Dylan Byers from "The Problem With Political Forecasting"

Next up we have November, 2018 when over 1 million signatures were collected protesting a rise in French fuel prices. This sparked the beginning of the yellow vest movement (gilets jaunes) in Paris. Protesters donned yellow vests and a populist protest has been ongoing from November thru the writing of this blog post (4/5/19).

How did President Macron handle these protests? He tried ignoring and then the riot police showed up and clashes ensued. What about fuel taxes? The list of grievances have taken on a life of their own and expanded to include Macron's removal. Nothing the oligarchs have done so far has worked to quell the unrest.

Once again, a complex environment seems beyond the ability to predict or control. Top down orders have had little effect on the bottom up, grassroots nature of the situation. Complexity rules.

A Cornucopia of Opportunity

"Dynamics freed at last from the shackles of order and predictability...exciting variety, richness of choice, a cornucopia of opportunity." - Joseph Ford, physicist

I saved my particular domain of running an online business for last. The topic that caught my fancy as an undergrad, "decision making under conditions of uncertainty" became front and center. Not a theoretical construct, but in real dollars and cents. After years of testing on a small scale in order to find what worked and eventually scale we began to discover that success on a small scale did not often translate to success when we rolled out.

Worse, all of the traditional marketing formulae declaring "statistical significance" seemed wrong. We hired a math Ph.D from MIT to validate our methodology. This was back in the early 90s. What a waste of money that was. We discovered painfully that there are variables outside of our control that "popped up" that changed the river we stepped into being a completely different river (Thank you Heraclitus!). I eventually learned that the "popped up" language was a layman's term for what complexity scientists call emergent behaviors.

Fast forward to running an online business selling "stuff" in 2019 as we try to understand living in a tremendously dynamic, fast changing environment. Information is at everyone's fingertips and this increased connection with information flows from a multitude of sources creates a new economic environment not just in months or weeks but sometimes within days. There were 2nd and 3rd order effects well beyond our grasp or control.

We scrapped a major tenant of direct marketing, scalable testing to a never ending evolutionary approach. We would test and if successful, would continue to the next list segment. We broke our 8 million subscribers into 40 separate segments. Successful campaigns would simply go to the next segment and continue through the segments until it ceased working. Most products, like species, die off before propagating through our universe.

By limiting our downside, we discovered the freedom beyond the shackles of prediction. We fancy ourselves more like Barry Sanders where we start going off right tackle but reacting to the field of possibilities as they emerge. If that means start right and reversing to sprint around left end, so be it.

Modern internet-speak frequently talks about pivoting. This usually means pivoting to a new business model. We pivot with each campaign, depending on the field. Rather than obsess about 2nd and 3rd order effects that certainly exist, we concentrate on tinkering in the present and limit our exposure while doing so. We discovered that opportunity emerges when we embrace uncertainty rather than waste enormous energy trying to eliminate it.

In the end, understanding complexity rules is what it is all about.

***

I am indebted to Nassim Taleb, Joe Norman and Yaneer Bar Yam who took a deep subject like "complexity" and made it intelligible to a layperson like myself. However, any errors interpreting complexity and applying the concepts are mine alone.

Original Article: Complexity Rules

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