Should I jump?
In 1993 a very successful American bond trader gathered together a few of his disciples and a handful of super-economists and set up a new hedge fund company that promised to be different from anything that had gone before. The new company apparently genuinely believed that their ingenious computer models would allow them to bet on the future with near mathematical certainty. Because their team had some high powered players – including two who were to be future Nobel Prize winners – investors believed them. The company portfolio grew quickly to $100 billion when a default in Russia set in train a sequence of events that the models had not anticipated. This placed the whole financial system at risk and the Federal Reserve quickly called in Wall Street’s leading bankers to underwrite a bailout. Roger Lowenstein in “When Genius Failed” (Fourth Estate. 2002) tells the whole fascinating story.
How could anybody – let alone the super intellects in that hedge fund company – possibly believe that a computer model, no matter how finely tuned, could predict ‘with near mathematical certainty’ future stock markets (which, after all, reflect the volatility that Keynes referred to as ‘animal spirits’). How could investors clever enough to have amassed the funds to invest, believe them!
Pondering these questions, I thought of the managers I have met who so passionately believe in their models that they brook no doubt, no exploration of better ways, no questioning – and I thought of the problems that this causes. Possibly it starts because to get financial backing in the first place, either from your organisation or from the market, you need to assume and project confidence.
However, confidence is one thing, blind confidence completely another.
So my question for you today is: How do we transit from the confidence we need to be persuasive before the project is adopted, to the level of confidence we need, after the project is adopted, that allows some room for doubt enabling resilience when the world changes (as it certainly will)?
One of my favourite quotes – which a mate (an academic) had on his email signature – is from Bertrand Russell. I think it’s worth quoting to encourage a healthy amount of doubt… “the trouble with the world is that the stupid are cocksure and the intelligent are full of doubt”
Future predictors and models that predict the future are like entertainment stars – we exalt the very few successful ones and forget the majority that have failed. How many were successful by accident? Many great discoveries were found accidentally by people trying to solve a completely different problem.
Most autobiographies of successful people have 2 things in common. Consistent hard work and a series of fortuitous accidents, the right things happening at the right time. Persistence and humility are the common factors of success.
So if we can’t reliably predict the future then why try?
Because most public infrastructure organizations that are asset intensive have mission statements that are an expression of hope and provide a good foundation for a strategic plan that has hope related goals and strategies.
Each project is based on the idea that the allocation of resources to the project will lead the organisation closer to the goals stated in the strategic plan. This “promise” should be predicted, measured and held accountable after the project is completed. This accountability and requirement for measurable evidence ensures the reporting of confidence of predictions and the appropriate level of doubt and humility as we begin to understand the connectedness of things and people.