Academic Identity
I am assistant professor of Sociology at Barnard College. My book (and my dissertation research) is a comparative study of technology and futures trading, an ethnography of open outcry and electronic traders. My current research is on how art specialists price cultural commodities, particularly how categories and commensuration work in the secondary/resale fine arts market. I teach courses in economic sociology, organizations, and gender.
Professional Identity
I occasionally consult, focusing on organizational change, the future of technology and financial markets, and environmental markets. I do strategic assessments of markets, technology and organizational design, with qualitative and quantitative components. If you are interested, please email me.
Personal Identity
I grew up outside Chicago, and went to school(s) at Wesleyan University, USC, and Northwestern University. I currently live in New York, with a partner who is a marketing manager for an educational nonprofit. I love movies, like to cook, and I can do a mean lindy swing out. I am INTP.
February 6, 2008
Black Swans, Risk Management, and Undersea Cables
Filed under: Institutional, Technology — Peter @ 11:16 pm
I’ve taken issue before with Nassim Nicholas Taleb’s black swan thesis, that high-impact, low-probability events are responsible for market crises and accidents. The more general implication is, as Taleb and Pilpel note:
What matters in life is the equation probability × consequence. This point might appear to be simple, but its consequences are not.
Suppose that you are deriving probabilities of future occurrences from the data, assuming that the past is representative of the future. An event can be an earthquake, a market crash, a spurt in inflation, hurricane damage in an area, a flood, crops destroyed by a disease, people affected in an epidemic, destruction caused by terrorism, etc. Note the following: the severity of the event, will be in almost all cases inversely proportional to its frequency: the ten-year flood will be more frequent than the 100 year flood – and the 100 year flood will be more devastating.
Now comes word that some number (actually up to 5 now) of undersea cables have been cut, knocking a wide area of the Middle East off the internet, particularly the route between Europe and Egypt, and from there to the rest of the Middle East.
But where is the 100 year flood? What appears to have happened is a connected series of accidents and snafus, including possibly the weather, an anchor dragging along the sea floor, or who knows what. Mysterious. What I would contend, drawing from org theory, is that what is more dangerous than a 100 year flood is a sequence of preventable, unforeseen errors. That is, it is the disruption of the routine more than a freakish activity that is most likely to create accidents and crises. The routine fire in a particularly bad location, a minor earthquake in an unexpected place, a sequence of coupled organizational routines that lead one-to-another into disaster. It’s not that you shouldn’t be looking for the next giant storm that’s inevitably coming down the pike, but more problematic are the breaks in the caulk around the tub that floods the electrical box, that shorts the grid. Or a failure in the bathrooms at the airport.
Read your Saul Alinsky, and get in the game.
5 Responses to “Black Swans, Risk Management, and Undersea Cables”
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This site is hand-woven, and heavily borrows from the wonderful blueprint framwork. Rock on, grids!
Not quite
, but getting there..
February 7th, 2008 at 4:17 am
Can we all agree to please stop. talking. about. Taleb? Nuttin there. Nuff said.
February 7th, 2008 at 6:26 am
Fair enough. It’s kind of how the left blogosphere can’t get enough of discussing Liberal Fascism, it is interesting and easy to find counter-examples. A while ago I was thinking about (and probably doing) a series on ‘when crowds are stupid’, per the Surowiecki.
Your suggestion shall be heeded.
February 11th, 2008 at 12:20 am
Re Surowiecki: I have a very different reading of the book than you do, although my take on Taleb is roughly the same. I read Wisdom of the Crowds as arguing that crowds are quite often dumb and maybe even usually dumb. His first chapter praises crowds as being capable of discerning truth and counting jelly beans, etc., but the rest of the book is all about specifying the conditions under which crowd wisdom should hold, which it turns out is not very often. His title is what sells the book, but the devil is in the details.
February 11th, 2008 at 8:30 am
I’ve been waiting for you then (ie someone else who’s read the book, not just the title) - why do conditions of diversity, independence, decentralization, and aggregation have to exist for the crowd to be wise? I mean, I get that experimentally, these conditions seems to apply (though I don’t even know if this is true, per the wisdom of sticks). Is it just Hayek for web 2.0? I just don’t get, theoretically, why any of this should work, and books and papers later, I’m not convinced anyone else does either…
February 12th, 2008 at 11:57 am
Peter, as you rightly point out, organisational theory can help us to re-evaluate the validity of the impact x probability framework. One of the clear (but easily ignored) points is that an ‘event’ is not a discrete occurrence, but is often a set of occurrences, connected ex-post by specific observers who were affected in a certain manner by these events. Hence, impact is ‘tailored’ and is not independent of the events. Notwithstanding, Taleb is a bold thinker who produces refreshing insights.