On Complexity

Complex system


The main idea behind complex systems is that the ensemble behaves in ways not predicted by its components. The interactions matter more than the nature of the units. One cannot perform reductionism.By definition they are chaotic and random. There are myriad interactions and what appears out of it should simply be seen as is without naive explanations. These are multi-dimensional systems interacting at various levels. Finding order or explanation in this is a fools errand.


By definition it is not possible to discern Causality in a complex system. Consequently, we cannot make any prediction and any attempt to predict is Fooled by Randomness (FBR)


Some complex systems
  • Brain, Mind
  • Human body, 
  • Macroeconomics, 
  • Universe, 
  • Financial markets, 
  • Ecosystem
These have properties such as such as nonlinearity, emergence, spontaneous order, adaptation, and feedback loops, among others which are observed but cannot be explained


Guidelines on dealing with Complex systems

Beware of the Bull Shitter

Anyone claiming to know / predict / theorise in complex systems is a bull shitter because no one knows causality. Without understanding causality, prediction is farcical. So, beware of anyone making predictive statements in this area. They don't know anything. You can treat those predictions as pure entertainment, otherwise they are useless

Do not intervene with a complex system

Why? Because you don't have a clue as to what's happening. You might disturb the intricate balance. Taleb fondly calls them as Interventionistas because they don't have a frigging clue but still want to intervene. More importantly they don't have skin in the game

Look for Survival a.k.a Lindy Effect

The only lessons you can draw from a complex system is to look at something that has Survived. It's a sure indication that it's doing something correct to survive in a complex system in which it exists. Otherwise it would have become extinct. Lindy effect is in the risk dimension, not the truth dimension.


"Not everything that happens happens for a reason, but everything that survives survives for a reason" -- Taleb


Understand Ecological Rationality

Taleb argues many supposedly irrational beliefs in a complex system and behaviours may have an 'ecological rationality', that is they are rational when viewed in terms of the environment they exist in.


Rather than purely looking at things as true/not true, as the na├»ve rationalist does, we should look at behaviours through the lens of pay-off. When we view things this way, the world becomes a different place - 'irrational' things can become rational when we consider their outcome. 


An action, superstition or attitude that reduces harm either to oneself or to a collective is arguably entirely rational, even if it seems illogical or ridiculous. 


He argues there must be benefits of irrational long-lasting beliefs otherwise they would have died out.


Beware of the Black Swan 

Platonification (When people, especially the learned and authoritative, create categories and oversimplify) missing central but hidden elements of a thing in the process of transforming it into an abstract construct, then causing a blowup. This is because of our inherent nature to simplify, categorise and explain everything. 


The Devil is in the details and the complex interactions. Simplfying a complex system is to miss its intricacies and be ruined when a rare event happens. Not understanding the stressors of a complex system, removing, reducing and simplifying is an invitation for trouble


Look for Skin in the Game

Arm chair analysts do not have any skin in the game. If you want to understand financial markets - go talk to a trader who lives in that unpredictable system and has to systematically avoid ruin. He cannot form fancy theories, discern patterns and use unbaked ideas because a single mistake can cause ruin. 


Anyone else who doesn't have Skin in the Game, who hasn't faced systematic ruin and survived are removed from ground reality. Their opinions are worthless


Look for Antifragility

Antifragility is the property of all those natural (and complex) systems that have survived, It is far easier to figure out if something is fragile than to predict the occurrence of an event that may harm it. That is the only reasonable thing that we can do in an unpredictable world. 


It's about Non Prediction - we can build a systematic and broad guide to non-predictive decision making under uncertainty in business, politics, medicine, and life in general— anywhere the unknown preponderates, any situation in which there is randomness, unpredictability, opacity, or incomplete understanding of things.


This is important ... don't try to predict / theorise in a complex system. Try and be Anti Fragile. Anything that has more upside than downside from random events (or certain shocks) is anti-fragile; the reverse is fragile.


The mother of all Anti Fragility is given by the Sages: The external world is a bitch and completely random. You can't predict or make sense of it and more likely you will get an oddball. 'So, take your mind off it; strengthen your mind to not depend on it and make sense of it. Otherwise, you will be only deluding yourself and unprepared when the oddball arrives'. 


That is the only reasonable thing to do with the world.


Approach via Negativa

This is very important. Why?


Addition to a complex system is intervention. Without knowing causality, it's asking for trouble. You don't know the outcome. While avoidance is simply not messing with the existing system and a more robust way of handling the situation. 


The Golden rule approached via Negativa is the best


"Do not treat others in ways that you would not like to be treated" rather than 

"Treat others as you would like others to treat you"


If you get this, you get the concept



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