Diversity and Resilience

Can’t we all just learn to “Get it Right”?

Just picture a ship with a large flat deck and thousands of passengers on the deck. The boat lists to one side and the passengers scurry to the other side to avoid going over the edge in the side that is dipping. Guess what happens? The boat now lists to the other side. Stabilizing the boat requires that everyone is spread about the entire deck. But since we do not necessarily know the exact spots where everyone needs to stand, some moving around makes sense. Just as long as everyone does not start moving together.

The world we live in is a much more complex and dynamic system than a ship at sea. We definitely do not know what is the safest course of action for everyone to take. We do know what hasn’t worked. We suspect that some of the things that we thought did work in the past were actually not good ideas. We do not know how to get the world to go backwards in time to when things were working best. In fact, they weren’t working best for someone then anyway.

Diversity is the most sensible approach when we do not know what will work. With a diversified approach it is quite possible that some will be doing the exact wrong thing, but at the same time, some will be doing the best thing for what comes next.

Only if we are certain of what will come next can we be sure to pick the best course. When too many people pick any single course of action, however, there often are unintended consequences.
Never before had mortgage loans in the US all gone down together, but when everyone started to increase the amount of leverage in the mortgage system, the leverage itself became the cause of massive correlation.

Ecological systems that are more diverse are more resilient. Human systems are the same.

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Explore posts in the same categories: Diversification, Enterprise Risk Management, Resilience

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