The Curly Factor & Risk? How to Profit From Coarse Behavior

We  talk about “risk intelligence”  and various gurus and philosophers have called it “the capacity to learn about risk from experience and a special kind of intelligence for thinking about risk and uncertainty.” I’m not exactly sure what that means, except you’re going pay a lot find out; and you’re also likely to get involved with estimating probabilities about threats and quantifying vulnerabilities and sophisticated probabilistic models.

But what if you are not very sophisticated?  Is there hope?  Actually it pays to be “simple” when it comes to dealing with high impact risk.  That’s what The Curly Factor is all about.

Curly was a very simple guy.  He was easily the dumbest but best loved character of the Three Stooges. There isn’t a culture in the world where people don’t recognize Curly.  Since he’s been dead for half a century and made a bunch of low budget “shorts” of questionable quality in the 1930’s that’s a pretty remarkable achievement.

So what is The Curly Factor? In two words:

“coarse behavior. “

No, not the kind of coarse behavior your mother yelled at you about.  Curly only noticed very basic signals from his environment.  Curly didn’t have elaborate or sophisticated decision making rules.  He wouldn’t know probability from a pot roast. But when they passed the hors d’oeuvers at a fancy black tie party, Curly didn’t just take two; he merrily took the whole tray! Subtlety was lost on him.

Curly only paid attention to the essential. We can just as easily substitute “essential” for “existential.”All other information is filtered out.

Is the key to emulate Curly and not the sophisticates with their complicated probabilities and models?  In certain instances that is exactly the case.

Although risk “experts” are loathed to admit it, the class of risk that is most threatening …and the ones for which there are no probability distributions…are the risks beyond our control, the ones we didn’t see coming. Traditional risk management isn’t equipped to deal with these killer risks, the ones that can bring your company or government to its knees overnight.  There are emerging tools and techniques but that has yet to become part of the profession’s DNA.  It’s all about the science of complexity and resilience, but more on that later.

So is the answer to do dumb things? Well, not exactly dumb…more like “less sophisticated.”

Curly engages in what economists call “sub-optimal behavior.”  Yes, that means he does dumb things, or at least things that seem dumb to the rest of us.  The corporate world has programmed us to go for gains at the margin, get a quick success, to become more efficient, and do the rational thing.   You win a lot of short term victories but there is solid evidence species that are prolific and successful in the short term die out after being hit with an unanticipated event. Sub-optimization can often equal survival.

Some of us have developed great talents for dealing with known risks but don’t have the understanding or aptitude for dealing with the uncertainty.  Worse yet, people are often programmed and rewarded for focusing on inconsequential or less consequential — it is a safe bet since if you get it wrong, the outcome isn’t catastrophic.  But if you want to understand the consequential – the killer risks – you have to change your frame of reference, think about things a little differently.

Try this thought experiment: You are the President of British Petroleum and you have this vision of the rUNFYnD[1]Deepwater Horizon disaster a year before it takes place.  You see the explosion, the fire, and the months of oil spilling into the Gulf. But here’s the catch: you can’t tell anyone about it. And that means you cannot focus remediation on that drilling platform.  What do you do?  Where do you focus your corporate risk management efforts?

Yeah, you ignore the subtleties of traditional risk management. You ignore the extraneous and focus like a laser on only that information that is directly relevant to your survival. That is exactly what Curly would do.

Now you understand the advantages of coarse behavior.  There is, of course, nothing wrong with traditional risk management techniques; and I am not suggesting abandoning them.  They are necessary but not sufficient to survive in today’s global and highly complex environment.  If you haven’t developed the insight and the science to deal with uncertainty maybe you ought to think about doing so.  Every now and again ask yourself “What would Curly do?”  And always take the whole tray when they pass the hors d’oeuvers.

Note: This is a work in progress and I am happy to discuss my ongoing research.  E-mail me and I will send you Rick Bookstaber’s original work on coarse behavior  called the “Optimization of Coarse Behavior” or you can go to my profile on Linked-In and download it from the Box.net archive there.  I take a little bit different approach than Bookstaber, but he is the towering intellect. One warning however, it is a “little” math intense.

John Marke © 2016

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7 thoughts on “The Curly Factor & Risk? How to Profit From Coarse Behavior

  1. Love it John and the article lived up to the billing! By “dumb” of course you mean counter-intuitive but you know what…the coarse version has much more resonance.

    As you know I am all for extending the “risk horizon” into the murky realms of uncertainty but, as you quite rightly say, who the hell (in the prevailing culture) wants to know about that when it inevitably means a drain on profit!? Ignorance, a convenient scapegoat or “the market” may just enable you to get away with it…even if it is at the expense of a few thousand dead animals or a couple of generations worth of misery!?

    David

    • Counter-intuitive….nicely put David. We think we are masters of the universe and that we control our destiny. Well, at least the guys who haven’t read Taleb yet.

      Like cats, we get distracted by shinny objects, the profit at the margin, the incremental cost savings, and so on. The irony is that, quite often in our hubris, we butt in with half-assed solutions that end up making the original problem infinitely worse. We have yet to learn that solutions “dance” in complex environments. Those postulating a command and control, as well as optimized solution, don’t know what they are talking about. They don’t understand the nature of complexity nor the complex environment.

      I think thresholds, among other complexity science concepts, could be extraordinarily important. I am hopeful that companies like yours, Ontonix, will provide the tools that will allow us to speak authoritatively about regime change and tipping points. Better we know more about failure than about optimized solutions. But that gets us into another interesting discussion of our obligation to falsify our solutions, and is best left for another thread?

  2. Pingback: The Curly Factor (via Prologue) « Get "fit for randomness" [with Ontonix UK]

  3. Geoffrey West calls this distinction the sublinear/superlinear whereby a company is defined by its use of open thinking. http://edge.org/conversation/geoffrey-west Open thinking in my book is where situational awareness (and hence probability awareness) takes a quantum leap to far horizon black swan scanning. Risk intelligence happens when you have a handle on your whole system and can scan it at multiple information space dimensions. And I have an algorythm or two for it which I developed for situation awareness similator training in complex adaptive systems. I firmly believe that you can train people to raise their level of risk intelligence, but as you point out John all intelligence depends on G (situation awareness is highly dependent on G) and if you are not very smart (hence compartmentalising problems within your own limited knowledge space) then you are going to narrow down your focus to data you understand. Then the black swans blindside you…

    • Alastair,
      Open thinking, doubting what Kuhn called “received knowledge” i.e. that which we learned in school as part of normal science or normal business….you hit the nail on the head.

      Maybe this graph will help. I think it will open for you if you paste it in your browser. The upper right hand corner is where most of the interesting things in nature take place and where we are least prepared intellectually and methodologically to deal with.

  4. The Problem: Information overload — A friend of mine in risk consulting mentioned that a client was complaining about information overload, something that seems epidemic today. What do we pay attention to? What is important? What is irrelevant? And the volume keeps growing every day.

    Conventional Wisdom Solution: Conventional wisdom would suggest we develop a finer way of screening information, perhaps some sort of algorithm to filter the relevant from the irrelevant, or perhaps a way of pushing the responsibility further down in the organization to where, ostensibly, the “local” knowledge might be more up-to-date. Maybe we can use I-phones or artificial intelligence and develop (or leverage) a technical solution. We have, at once, combined a technological and organizational solution! Life is indeed sweet.

    Well, maybe not. The Curley Factor is all about ignoring things:

    Ignore the damn information
    Ignore the subtleties of risk management
    Ignore the technological and organizational solutions
    Ignore gains or losses at the margin

    Yes, these are sub-optimal behaviors, or coarse behaviors. Every species that has enjoyed long term sustainability, such as the cockroach, has primarily used suboptimal strategies to do so.

    You must focus on only those things of absolute importance to your operation; and those are the risks that can bring your company to its knees.

    The cockroach survives because little puffs of air alert him to the presence of a predator, and then he ignores everything else and runs like hell away from it.

    Ya think maybe he’s on to something?

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