understanding & dealing with complex adaptive systems paras anand head of european equities
TRANSCRIPT
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UNDERSTANDING & DEALING WITH COMPLEX ADAPTIVE SYSTEMS
PARAS ANANDHEAD OF EUROPEAN EQUITIES
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ANT COLONY
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MIDDENFORAGE
PATROL
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COMPLEX ADAPTIVESYSTEMS
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INDIVIDUAL AGENTS
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INTERACT
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EMERGENCE
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WHY IS IT IMPORTANT?1. We deal with complex systems everyday
2. World is only getting more interconnected
3. We are poor at recognising and dealing with complexity
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YELLOWSTONENATIONAL PARK
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CHALLENGES OF DEALING WITH COMPLEX SYSTEMS
PAINFUL CONSEQUENCES
INCORRECTLY IDENTIFIED CAUSE &
EFFECT RELATIONSHIPS
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LEISURE& WORK
CONSUMPTION & SAVINGS
VALUE & UTILITY
WORKAHOLIC EQUITY MARKETS
LUXURY GOODS
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REVERSIONTO THE
MEAN
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1
3
2
4
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LEARN FROM
CALCULUS AS WELL AS
STATISTICS
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PREPARE CHECKLISTS
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PREPARE CHECKLISTS
• Explicit checklists succeed where mental ones don’t• Our jobs today are heuristic rather than algorithmic• Widely used in industries with very high failure
costs• Acknowledges ‘environments’ under which critical
decisions are made
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USE THE OUTSIDE VIEW
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PREAKNESSSTAKES
KENTUCKY DERBY
BELMONTSTAKES
TRIPLE CROWN
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THIRD RACE WINNERS AFTER TWO VICTORIES
40%
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THIRD RACE WINNERS AFTER TWO VICTORIES
15%AFTER 1950
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ACCEPT MULTIPLE
OUTCOMES
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ACCEPT MULTIPLE OUTCOMES
• Healthy discipline to anticipate several states of the world and how decisions may turn out
• Not in sync with our natural mental processes
• Think about multi-year business plans
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ACCEPT
MULTIPLE OUTCOMES
LEARN FROM
CALCULUS AS WELL AS
STATISTICS
USE THE
OUTSIDE VIEW
PREPARE
CHECKLISTS
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SUMMARY
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SUMMARY
• Recognising the relevance of complex adaptive systems is a valuable step in challenging received wisdom
• Our decision making requires approaches that acknowledge unintended consequences
• Proposed approaches are not exhaustive but are hopefully useful
• Each requires deliberation rather intuition
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