Imagine a world where electrons can think. Then imagine a world where electrons can make their own rules. Welcome to the economic system, and our financial markets.
Complex hardly seems to sum it up. Intractable unfathomable environments where your only help is in the application of Markov decision making processes to hopefully keep you on the path of sanity and reason. Working out how the the universe works with it’s entropic singular direction of time is a cinch compared to the complex sub system architecture of open systems within systems.
The way we pluck sample data in a biased way to derive information and then knowledge (our mental models) provides a very myopic linear way to address a complex problem. Yes, we need specialists…..and the more the merrier, but more importantly we need project managers who have an appreciation of this deep plural viewpoint to enable ‘wisdom’ to be in a position to use that knowledge which is important in addressing an aspect of complexity. A non-linear method of simply making better decisions as opposed to the notion of an optimal path sculpted from that which matters most at this point in space and time in a complex adaptive environment.
Do you think this ‘smells of diversified trend following’. Namely a position of no predictive stance but the possession of a very large array of diversified simple models that have successfully navigated the past melded together into a robust (multi-model) portfolio to navigate a future uncertain world. I hope it does.
Welcome to the world of Scott Page and his interview with Shane Parrish from Farnam Street.
….and now you have had time in this discussion to appreciate the need for a pluralistic viewpoint to forensically investigate a complex system, here is an applied Markovian approach to decision making that is used very successfully by an innovative thinker in the hedge fund industry…… Say hello to Ray Dalio and Bridgewater Associates. Forget Bobby Axelrod. That’s kids stuff. This is how you create an edge.