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Survive by learning from disorder

Datum:10 oktober 2019
Auteur:Fabian Ahrens
Survive by learning from disorder
Survive by learning from disorder

Over the summer I read a book that challenged some of my beliefs about my own research field. The book ‘Antifragile’ [1], written by Nassim Nicholas Taleb, a controversial Lebanese-American philosopher, statistician, former trader and risk analyst, deals with the triad of fragility – robustness – antifragility. Most people, myself included, have never heard of the term antifragility, so let me explain: Systems that are fragile break when exposed to stressors, robust ones are not impacted by stressors at all. Antifragile systems, however, benefit from stressors, they improve through disorder and are beyond robustness and resilience.

What does this have to do with my research field: upper echelons, boards, top management teams, and CEOs? At least three things. First, directors and top managers act and re-act. They choose between alternative strategic plans, often in reaction to positive or negative environmental stressors like crises, competitors and regulatory changes. Their ultimate goal is keeping the company competitive, keeping their jobs, and satisfying all kinds of stakeholders.

Second, they act in an uncertain environment. Stressors can come out of the blue and to hedge against all kinds of risks, every company employs plenty of lawyers, strategic planners, and risk managers. Top decision makers want their companies not to be fragile but robust instead and consequently base their actions on this goal.

Third, top decision makers are still humans. Hence, they are fallible and use heuristics while trying to be rational. None of them is a homo oeconomicus, a fully rational person. But probably all of them have developed their own way of doing things, their own way of handling a huge amount of information to make informed and thought-through decisions.

Taleb argues that, since we live in a world dominated by the forecasting paradox (having more data while being less than ever able to predict the future based on this data) and non-linearity (ten-year forecasts are not ten times but probably thousand times more uncertain than one-year forecasts), we should become more antifragile - thus, learning to live and work with disorder. For companies that means to rely less on strategic plans and forecasts [2] because risk management relies on probabilities of events that have occured but cannot predict new, unprecedented events (e.g. the financial crisis in 2008). Instead companies should focus on creating alertness for opportunities, uncovering their own weaknesses, and improving through stressors and unforeseen events.

Based on his ideas, I would like to point out three strategies that Taleb recommends to personally become more antifragile but which can especially be translated to company decision makers: (1) ‘skin in the game’, (2) a ‘barbell strategy’, and (3) learning from the history of medicine.

First, decision makers should have ‘skin in the game’. Decision makers must profit from gains but at the same time also pay the price for losses. This very simple rule will decrease the likelihood of high-risk decisions that benefit decision makers if going right, but leave others paying the debt if they turn out bad. These kinds of decisions have happened a lot before the crisis in 2008 and can still be found in many companies in which decision makers are not the owners and may pay the price by loosing their job but not their earnings and capital.

Second, the ‘barbell strategy’ recommends a dual strategy by combining two extremes to become more antifragile: safe and speculative strategies. A safe strategy will not put the whole system at risk while intermediate-risk strategies will likely do. Lots of trial and error (speculation) will uncover weaknesses and opportunities but does not compromise the system as a whole. 

Third and last, learning from the history of medicine [3]. Often in every part of our lives, we act upon beliefs that we think are true. For example, phlebotomy (blood-letting) in medicine has long been practiced after both a better understanding of the human body and better methods to treat it were known. Instead, we should strive to challenge the status quo of our beliefs and not rely on ‘what we have always done’. Top decision makers should even more do so since their decisions impact not only their companies but also competitors, markets, and consequently societies.

Fabian K. Ahrens (f.k.ahrens rug.nl) is a PhD candidate at the Department of Human Resource Management and Organizational Behavior of the University of Groningen. The PhD topic is “The Role of Independence and Objectivity in Board Effectiveness” working with Prof. Floor Rink, Dr. Dennis Veltrop, and Dr. Laetitia Mulder.

References

[1] Taleb, N. N. (2012). Antifragile: Things that gain from disorder (Vol. 3). Random House Incorporated

[2] Starbuck, W. H. (1993). Strategizing in the real world. International Journal of Technology Management, 8(1-2), 77-85

[3] Dawes, R. M., Faust, D., & Meehl, P. E. (1989). Clinical versus actuarial judgment. Science, 243(4899), 1668-1674