Category Archives: Economics

A Complex Take on the Need for Chaos

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ANTIFRAGILE

How can the world deal with the highly improbable, high-impact “black swan” events that philosopher Nassim Nicholas Taleb described in his bestseller The Black Swan? The answer comes in Taleb’s new book, Antifragile, a complex, learned, irreverent, mind-bending masterwork that just may have the longevity of the works of his favorite ancient philosophers.

Traditionally, Taleb writes, the world is divided into elements that are fragile — that will be weakened or harmed by volatility, disorder and stress — and elements that are robust — those elements that can resist such volatility and stress. According to Taleb, no such dichotomy exists — at least not, as he explains, for “what is living and organic (or complex), say, the human body, and what is inert, say, a physical object like the stapler on your desk.”

Instead, items can be classified under a triad of designations: Fragile, Robust and Antifragile. The difference between robustness and antifragility is surprisingly simple: Something robust resists “volatility, randomness, disorder and stressors” and stays the same, he writes. A robust house does not crumble because of an earthquake. Something antifragile, on the other hand, actually becomes better and stronger as a result of volatility and stressors. Taleb shows how nature is antifragile with a simple example: If you trim a tree, it grows back bigger and stronger branches. Cutting the branches helps.

The evolution of the planet and its living organisms is itself a case of antifragility. As the planet undergoes stresses, it adapts and improves. The weakest of a species eventually disappear, leading to a stronger, less fragile species. “Even when there is extinction of an entire species after some extreme event, no big deal, it is part of the game,” Taleb writes. “This is still evolution at work, as those species that survive are fittest and take over from the lost dinosaurs — evolution is not about a species, but at the service of the whole of nature.”

At the Service of the Whole

While nature benefits from volatility, shocks and extreme events, that doesn’t make the dinosaurs any happier, and therein lies one of the challenges of antifragility. As Taleb explains, “Had the Titanic not had that famous accident, as fatal as it was, we would have kept building larger and larger ocean liners, and the next disaster would have been even more tragic,” he writes. “So the people who perished were sacrificed for the greater good; they unarguably saved more lives than were lost.”

Antifragility does not mean that only good things happen as a result of stress or shock; it does mean that the overall benefit or gain of the event outweighs its negative impact. The sinking of the Titanic was indeed a disaster but, in the long run, as Taleb noted above, it saved more lives than it lost. “The story of the Titanic illustrates the difference between gains for the system and harm to some of its individual parts,” he writes. Ships are fragile, but transatlantic shipping is antifragile.

Making Things Worse

The antifragile has in the past gone completely unnoticed. As a result, those who would fix the problems of the world, writes Taleb, have concentrated on making the fragile more robust. Unfortunately, these “fragilistas,” as he calls them, operate with no appreciation or awareness of the random unpredictable black swan events and in complete ignorance of the realization of the vital positive role that volatility and stressors play. Fragilistas are further handicapped by the fact that they misinterpret the past and, based on erroneous thinking, try to predict the unpredictable. For example, consider the 18th-century doctors of George Washington who tried to treat his illness through bloodletting, thus in fact hastening his death. In this and other cases, the fragilistas are making things more fragile. Much of Taleb’s work describes the myriad reasons for the failure of the fragilistas — and the impact of such failure.

So how should we proceed? Taleb recommends the barbell strategy, which can be described as a strategy of maximum riskiness and maximum safety at the same time, “without the corruption of the middle.” As Taleb writes, “antifragility is the combination of aggressiveness plus paranoia — clip your downside, protect yourself from extreme harm, and let the upside, the positive Black Swans, take care of itself.”

The Importance of Legal Literacy to Your Business

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“In a monumental verdict, a jury recently awarded Apple $1.05 billion dollars in damages, determining that Samsung copied the technology used on the iPhone and iPad. Christian Louboutin did not make out as well in its case against Yves St. Laurent. Despite having applied for a trademark for their brand-defining red-soled shoes, the court found that Louboutin could not impede the creativity of other designers and granted Yves St. Laurent the right to copy the well-known fashion statement. From smart phones to high heels, song lyrics to Spider-Man, possessing copyrights, patents and trademarks is the first line of self-defense, as well as highly lucrative.” Alexandre Montagu

Does your company have trademarked or copyrighted products, or are you using designs or technologies that may overlap those of other companies? Then intellectual property is a topic that you ignore at your own risk.

In Montagu’s new book, Intellectual Property, he looks at the dangers and opportunities inherent in this complex arena. Among the major areas that he investigates are:

  • Protecting your brand online – this includes domain name strategy, cybersquatting, fraud and impersonation online.
  • Online copyright infringement – this includes areas like piracy, peer-to-peer sharing and policing piracy online.
  • Indentifying, protecting and monetizing your intellectual property, especially in the industries of fashion, art, music and entertainment.
  • The next step in national security – this involves the well-publicized topic of cyber warfare and cyber attacks on corporations.

In our next Soundview Live webinar, Money and Power in a New Era, Alexandre Montagu will explore the pitfalls of being caught unaware of Intellectual Property law. “Whether it’s the trade secrets of a hedge fund’s algorithms, the copyrights or patents underlying the smart phone, the trademarks that protect well-known brands, intellectual property bastes the modern economy,” he says. Through fascinating anecdotes and compelling court cases, Montagu brings home just how important legal literacy can be for your business.

Special Week of Webinars

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Next week is special at Soundview, as we have three guest speakers joining us for Soundview Live throughout the week. Whether you’re interested in increasing your productivity, understanding the shift in our global economy, or learning how to lead through change, we’ve got you covered. Check out the great lineup of guest authors below.

Extreme Productivity with Bob Pozen

Bob Pozen will be sharing concepts from his book by the same name, to reveal his secrets to workplace productivity and high performance. The antidote to a calendar full of boring meetings and a backlog of emails, this event will show you how you can achieve your goals by making a critical shift in mindset: from hours worked to results produced.

How to Lead Your Business through the Global Tilt with Ram Charan

We are fortunate to have Dr. Charan back with us to discuss the shifting global economy. Dr. Charan has spent more time than anyone else on the ground observing and analyzing what he calls the “Global Tilt.” In this webinar he will give you the tools to detect trends that cut across not just industries but also countries, rethink the economic and business principles you rely on, and adapt to the speed of innovation and unprecedented needs of the new global economy.

Becoming a Master of Change with Rodger Dean Duncan

You’ve no doubt heard the old expression “the only constant is change.” The trouble is that for most of us, change is stressful, even scary. But change doesn’t have to be painful, or even unpleasant. It can be invigorating, inspiring, a chance to gather people around an energizing mission. In this webinar Rodger Dean Duncan will take us beyond theory to provide a clear road-map to successful change. Duncan will describe what he calls “The Four T’s,” four simple strategies that provide the foundation for handling change. Then, he’ll offer a clear, seven-step system for managing it. 

Consider this week a mini-conference for you and your colleagues. Take your lunch hour (at least on the east coast) for three days and learn from these knowledgeable business leaders. Or you can of course sign up for just one or two events.

To learn more about each event and speaker, just click through on the links provided above. As always these webinars are free for all Soundview subscribers. Non-subscribers pay just $69 per event and you can fill the room with colleagues.

If you’re not yet a subscriber, you can subscribe to Soundview’s Online Edition today for just $99, and get all three of these events, plus many more throughout the year, FREE. Our goal is to connect you with the business thoughts leaders that can make a real difference in your business and career.

Why So Many Predictions Fail – But Some Don’t

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THE SIGNAL AND THE NOISE

NO NOISE WITH THIS BUZZWORTHY BOOK

Nate Silver, the creator of the New York Times political blog FiveThirtyEight.com, is probably America’s most well-known statistician, especially after his assertion that a 300-plus electoral college vote victory for Barack Obama was highly probable proved correct. In The Signal and the Noise, Silver explores a wide variety of areas — including electoral politics, sports, weather, terrorism, war and gambling — in which prediction plays a major role. He examines some of the major failures, from Pearl Harbor, 9/11 and the 2008 financial crisis to a whole series of failed earthquake forecasts, to try to understand what went wrong and what can be learned for the future. The problem is not the lack of data — today there is an almost endless supply of information on any topic or question. Instead, the problem is learning how to interpret the information, paying attention to the right information and recognizing the rest as just distraction — in other words, recognizing the difference between a predictive signal and the distracting noise.

Colossal Misinterpretation

Silver begins by examining one of the most colossal errors in prediction in recent times: the world financial crisis that no one predicted. As Silver explains, the signals were present, but were dismissed. As analysts and decision-makers watched continuously rising house prices, they failed to see the potential for a bubble; as they watched the explosion of mortgage-backed securities, they failed to understand the risk of those securities; as they started to consider the potential of a housing crisis, they failed to see that such a crisis could trigger a global financial crisis; and as they dealt with the financial crisis, they failed to predict the long-term impact.

Be Foxy

For Silver, the best forecasters are going to be “foxes,” rather than “hedgehogs.” The metaphor comes from Isaiah Berlin’s famous essay, “The Hedgehog and the Fox.” Hedgehogs believe in big governing ideas from which everything flows, Silver writes. Foxes, on the other hand, believe in little ideas and multiple approaches. Hedgehogs are specialized, stubborn and confident. Foxes are multidisciplinary, self-critical and cautious. The principles of Silver’s FiveThirtyEight blog reflect his “foxy” approach to forecasting. Instead of confidently making one specific forecast and sticking to it, especially if it’s different from what everyone else is saying, Silver offers a range of probable outcomes and is willing to change the predictions in light of new information.

The Human Factor

Despite his mastery of data, Silver notes that the human factor is equally important in making the right predictions. “What is it, exactly, that humans can do better than computers that can crunch numbers at 77 teraFLOPS?” Silver asks, as he considers two meteorologists staring at every screen on the forecasting floor of the National Weather Service headquarters. The answer: “They can see.”

Of course, they can also misinterpret what they see. But Silver is hopeful for the potential of predictions as long as those making the predictions, he writes, adhere to the principles of an 18th century English minister called Thomas Bayes. In a chapter titled “Less and Less and Less Wrong,” Silver describes the probabilistic theory of Bayes, in which someone makes a prediction, looks at the new evidence, confirms or changes the prediction, looks at the new evidence, confirms or changes the prediction, each time getting closer to making the correct prediction. As Silver explains, Bayes taught us that we learn about the universe “through approximation, getting closer and closer to the truth as we gather more evidence.” Bayes theorem implies that “we must become more comfortable with probability and uncertainty,” he writes. “We must think more carefully to the assumptions and beliefs that we bring to a problem.” As Silver demonstrates in detail in such diverse areas as sports, global warming, and terrorism, the more predictions are based on a Bayesian approach, the more likely they are to come true.

The Signal and the Noise is a sprawling, dense book that is as filled with stories and personalities as it is with data. This book will fascinate those who care about what is happening in the world — or what may happen.

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A Captivating View of An Economic Tiger

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WHAT CHINESE WANT

A CAPTIVATING VIEW OF AN ECONOMIC TIGER

What Chinese Want is an exhaustive and revealing exploration of the Chinese people — and more specifically the different cultural, political and economic forces that shape their behaviors both as business leaders and consumers. Author Tom Doctoroff, who has lived and worked for 14 years in China as the regional CEO of the J. Walter Thompson agency, helps Western readers better understand this paradoxical nation of state planners and entrepreneurial billionaires.

Regimentation and Ambition

The paradox of regimentation and ambition is reflected in the Chinese people themselves. “On one hand, the Chinese are cautious and self-protective. They are rule-bound, fixated with order, tentative in implementing change, obsessed with preserving face, understated in expressing opinions, and supremely hierarchical,” Doctoroff writes. “On the other hand, they are ambitious and like to boldly project status, as evidenced by an obsession with luxury brands as tools of advancement.” This “unifying Confucian conflict” between regimentation and ambition, self-protection and status projection, fear and confidence, leads to the philosophical driving force that keeps the nation moving forward, Doctoroff writes. In short, he explains, the Chinese “want to succeed by mastering convention.” Maintaining stability is how you win. This overriding attitude leads to three timeless truths for the Chinese. First, everything is interconnected — which means that harmony rules. Second, chaos is evil and the only good is stability. And finally, the family, not the individual, is the basic productive unit of society. The Chinese, Doctoroff writes, are fiercely anti-individualistic.

The Rules of Entrepreneurial Success

Doctoroff introduces readers to two entrepreneurs that illustrate the potential of Chinese business despite the seeming constraints of the Chinese culture. Cai Hua is the founder of Always, China’s most extensive field marketing operation. Ding Shizhong is the founder of Anta, China’s largest sports shoe and apparel manufacturer. “Between 2000 and 2010, both Always and Anta emerged from practically nowhere to dominate their domains,” Doctoroff writes. How did they achieve such success? According to Doctoroff, their strategies and the leadership styles of their founders are quintessentially Chinese. For both men, scale is important; both have built enormous well-oiled networks. Scale prevents chaos — and begets security, Doctoroff explains.

Also, neither Anta nor Always have any interest in going global. However, they are very interested in learning from abroad to acquire a competitive advantage. Likewise, Anta and Always don’t want to create the breakthrough innovation of the future; they prefer incremental progress. Both companies are led by men who may be physically unimposing and softspoken, but who rule with an iron fist.

A Vast Array of Topics

Building on the cultural underpinnings that he has brilliantly laid out, Doctoroff proceeds to cover a startling and fascinating variety of business-related topics. For example, he offers rules for fostering innovation in a risk-adverse society. These rules include, among others, dramatizing the vision and offering creativity training. He explains the continuing tolerance of piracy, stemming partly from a disdain for the ideal of individual rights reflected in the concept of intellectual property. He reveals the cultural challenges behind the unexpected failure of Barbie in China through the words of his 14-year-old neighbor: “She’s so obvious.” Hello Kitty, cute and understated, is much more appealing to Chinese girls.

Tiger moms, branding in China, the societal implications of an earthquake, a tragic scandal involving tainted milk that killed six children and the ways that China sees the United States are just a sample of the topics covered in What Chinese Want. Doctoroff ends this fascinating and important book by dispelling some of the myths about China. For example, China will not be the dominant superpower of the 21st Century. China will be an economic superpower, but it cannot captivate the hearts and minds of the globe as America has. In Doctoroff’s words, “there will be more than one tiger on the mountain.”