Seeking Wisdom II – Beware of “systems thinking”!


 Seeking Wisdom II – Beware of “systems thinking”!


“Facilis descensus Averno” (The road to hell is paved with good intentions) Virgil - Aeneid

As Mr. Market is standing still - due to the FIFA 2018 World Cup perhaps & the ensuing summer lull – why not dig deep and think about “thinking”?


Perhaps a good place to start thinking about thinking is to dig in Ancient Greece. Let’s move on from Virgil and look at Aesop, a slave & storyteller believed to have lived in Greece between 620 and 564 BCE. This is one of his fables:


“A poor widow living alone in the country kept a faithful hen. Each morning the hen laid a big brown egg for the woman’s breakfast. One day the widow thought to herself: “Now if I were to double my hen’s allowance of barley, she would lay me 2 eggs a day instead of one.” So she started feeding her dear hen a double measure of grain, and soon the hen began to grow fat, and sleek and lazy. It wasn’t long before she stopped laying altogether.”


Now let’s jump 2500 years. Are humans “thinking/behaving” differently? Not really, as evidenced below.


In December 1973, Johnny Carson, the TV host of the popular Johnny Carson Tonight Show, a modern Aesop of some sort, joked on his show about an alleged shortage of toilet paper. Viewers believed the story and panic buying and hoarding ensued across the United States as consumers emptied stores, causing a real shortage that lasted for weeks. Stores and toilet paper manufacturers had to ration supplies until the panic ended. Carson apologized in January 1974 for the incident, which became what The New York Times described as a "classic study" of how rumors spread.

These two stories show that, even though good thinking is better than good intentions, good thinking can have undesired consequences. Below is another example as related by Charlie Munger, Warren Buffett’s partner & Vice Chair of Berkshire Hathaway:


“An excess of what seems like professionalism will often wind up hurting you horribly precisely because those careful procedures themselves often lead to overconfidence in their outcome… Long-Term Capital Management, the well-known hedge fund collapsed as a result of its principals’ overconfidence in their highly leveraged methods. And it collapsed despite those principals having IQ’s that must have averaged 160 or more… Smart, hard-working people aren’t exempt from professional disasters resulting from overconfidence. Often they just go around in the more difficult voyages on which they choose to embark based on self-appraisals in which they conclude that they have superior talents & methods. It is, of course, irritating that extra care in thinking isn’t all good – that it also introduces, like in Aesop fable, extra error. But most good things have undesired “side effects”. And thinking is no exception.”


Certainly, one way to reduce unintended consequences is to stop focusing on isolated factors and instead consider how our actions affect the whole system.


System thinking, a huge subject! To be continued…