Chronicles of Catastrophes Foretold
“Santiago Nasar is brutally murdered by two brothers in a small town. All the townspeople knew it was going to happen – including the victim. But nobody did anything to prevent the killing. Twenty-seven years later, a man arrives in town to try and piece together the truth from the contradictory testimonies of the townsfolk.”
Gabriel Garcia Marquez: Chronicles of a Death Foretold
Nicolas Taleb was right to argue that extreme, rare events define history, but wrong that they could only be explained in hindsight. Black Swans are preceded by weak signals. Inadvertently he gave political and business leaders around the world an excuse to procrastinate. Worse, the justification for their follies: ‘well, no-one could have predicted that’.
He is not alone. American economist Frank Knight came up with the idea of ‘Knightian uncertainty’ in the 1920s to describe events that cannot be ranked according to probability or impact, or, by definition, vulnerability. These events are not risks in the sense that boardrooms understand them. They are beyond risk, quantification and modelling.
Donald Rumsfeld’s re-telling of the well-known Pentagon adage echoed Taleb: “that was an unknown unknown”. More recently, Mervyn King, former governor of the Bank of England, devoted much of his book, The End of Alchemy, to another modern variation: ’radical uncertainty’.
Meanwhile, in parallel, complexity theorists have long talked about ‘emergence’, investing in models that predict that overstressed systems are prone to sudden collapse, triggered by small, random events that cannot be identified in advance. In the aftermath of the 2008 financial crisis, ecologists likened financial market behaviour to biological systems and shocks to the notion that ideas that ‘go viral’.
Uncertainty takes many forms. One variation is that assessing or acting on ‘known unknowns’ is beyond us. No-one is rewarded for investing in resilience against long-tail risks, since most of the time, by definition the risks do not crystallise. Track records are preserved until the big event.
Another, illustrated by IPCC reports, is that uncertainty, in any form, is justification to wait. Why else did political leaders neglect the first weak signals of climate change thirty years ago? Or fail to take decisive action in the Paris agreement?
Another, related, variation is that uncertainty is manufactured. In the hands of Exxon, who knew long ago about the risks of fossil fuels, carbon emissions and climate, uncertainty was a public policy tool, intended to distract, confuse and undermine regulators, political leaders and the public.
Shocks and Weak Signals
In each variation, people fall into a similar trap: they convince themselves they do not know how to deal with uncertainty, surprises, or long-term catastrophic risk. The story goes that shocks are inevitable, but unthinkable. They cannot be predicted, or forecast. Unknown unknowns and known unknowns are a fact of life. There is no way of preparing.
The idea that shock events cannot be foreseen lingers in the public imagination for good reason: it is a convenient fiction. No-one is blamed for failures of imagination when everyone else has invested in the same boat design and sunk in the same so-called freak storm.
Similarly, the story goes, no one is rewarded for spending on resilience since by definition most of the time the money is wasted. Investing in pre-emptive action is expensive. Better stick to certainties and what we know. Pick up the pieces after the event. Some even argue that the political classes are best in a crisis – a self-defeating position that denies human agency in foreseeing or controlling events. For some, this position is a justification for not thinking about the long-term future.
More accurately, it explains perpetual crisis. All these justification stories may be enticing, but not true. Most Black Swans, unknown unknowns and all the variants, show themselves early. The art and science of foresight rests on identifying – or better imagining – weak signals and tracking them over time.
Weak signals have special characteristics. By definition, there is little evidence that they are important. They defy easy descriptions and cannot be, as Frank Knight said, ranked in risk terms. Some, like micro-plastics, remain dormant for decades, before exploding in the public eye. Many come and go, in the shadows, playing on ancient anxieties about unknown, dark forces. They emerge from underground political movements that go unnoticed because they do not fit prevailing worldviews. Often they appear as anomalies, or vaguely articulated, competing proto-stories.
Many fall away. Others gain momentum and take shape in a more solid, influential form, as emerging narratives. Barely imagined futures become stories and begin to create influence in mainstream and social media. Environmental activism is nothing new, but has political momentum. The idea of ‘de-growth’ and measuring progress by regeneration of the natural environment has momentum. The narrative that some coastal areas will become uninhabitable, forcing moves to higher ground, is emerging in the media along the eastern seaboard of the US. Some of the world’s major insurers are raising the prospect, first mooted years ago, that the world may become uninsurable in more extreme climate scenarios.
Weak signals take other forms. Disruptive structural changes in industry often emerge first as hints from the secret worlds of invention. World-class inventors are weak signal specialists, focusing investment not on the ‘hotspots’, where everyone is filing patents, but searching for ‘white space’, where there are unmet or even unimagined business needs and little or no activity. The paradox is that the absence of evidence is evidence of opportunity. In other words, some valuable weak signals emerge barely as signals at all. Yet with the right receiving equipment, they are loud and clear.
Political leaders and policy-makers face the biggest challenges. In a political culture dominated by evidence-driven policymaking, they have another problem: model failures. Or better, mental model and worldview failures. There are blind spots. Just as economists excluded the influence of the financial markets in their models in the evolution of the 2008 crash, policymakers have long excluded the influence of emotion on public opinion and behaviour. The realisation that immigration and austerity had a direct impact on public mood was too little, too late. The signs were there, if you knew how to look, just as some saw the signs of the 2008 crash, long before it emerged.
Weak signals can only be received if political leaders keep channels open and tune in. The mantra should be open systems thinking and empathy, not ideology.
Shocks are preceded by weak signals. There should be few surprises.
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