Old Blighty, Black Swans and a Spot of Bother

Over the past few months, it has surprised; no, alarmed me, how the financiers of our age have allowed banking to reach its current hiatus. (Don't worry, I'm not going to start harping on some high falutin rant about finance), simply that it's amazing that we can misunderstand ourselves to such a degree. Jeremy Clarkson sums it up perfectly in his recent article:

These, as I see them, are the facts. Planet Earth thought it had £10. But it turns out we had only £2. Which means everyone must lose 80% of their wealth.

More interesting still, are the reactions of the intelligentsia at such times. The Economist: "Redesigning global finance", "Capitalism at Bay" and other evocative titles enshroud tales of job cuts, ruination and impending global failure. London's daily pulp "The Metro" struggles to open the eyes of the bleary 7am eyes of city workers with such titles as the good folk of the big smoke are tired of hearing the economic equivalent of "FUBAR" and "All your base are belong to us".

And yet looking upon all this with a cynical eye, one can't help but observe simply, that this crisis was widely expected, wholly predictable, and consequentially, massively more damaging than had first been thought possible.

Two recent enlightening factors have influenced my view on predictability and determinism, and hence on how such events can be better negotiated.

Reading Nassim Taleb's interesting, if slightly patronising "The Black Swan" he effectively outlines the characteristics of situations where linear determinism is applicable, and those where random, or highly improbable phenomena are more likely to occur (a phenomenon he calls a 'Black Swan').

In a similar vein, Malcolm Gladwell's recent TED talk touches on how difficult it is to decisively arrive at a single probable outcome for a situation, specifically in his example, the choices consumers want are largely unbeknown to them; or at best, ill-understood.

And so I believe it is this essential combination of human need to categorize events, coupled with the fact that our internal reasoning often differs from what is expected by others, leads to situations such as the current global financial state. This is all horribly woolly and ill-defined, but ultimately what I propose, is that as humans we do not behave as expected, and further that our need to categorize events is vulnerable to imprecision, and hence further misinterpretation.

I haven't spent enough time devising a highly improbable solution to this but it rests at the fore of my mind if only for the reason that it'd be a shame to see Old Blighty fall prey to a spot of dodgy banking.