Principle of Universal Options

Whatever the challenge, field or situation, there are options to invest in to hedge risk and unceirtainty.



This is a rather bold assertion, but I believe it to be very true. Some examples:

Stock market: Options and other derivatives.
Commodity and currency markets: Hedging or futures.
Business and personal economy: Insurance, portfolio management,
Personal health: Excercise, healthy food, vacations
Personal Career: Education, training, parallell ventures
Project Management: Real Options, Risk and change management
Engineering: Modularity, flexibility
Medicine and psychology: Alternative treatment forms

My note to self? Whatever the challenge, there will be heging possibilities that for a limited cost will reduce the risk we are facing.

Evolutionary Prediction - The Wisdom of the Crowds

From my point of view, the biggest single paradigm shift in human history can be marked by the introduction of theoy of evolution and the theory of natural selection. The theory not only gives us meaning in understanding the past, it is the basis for the most powerful ways we have to predicting the future.



First and foremost, it opened up a totally new perspective on the whole concept of humans and where we come from. Old school religious theories were thrown out (even though some hardcore bible-enthusiasts still cling to sci-fi concept of intelligent design).

Secondly, and maybe just as important it gave us a general reference model that can be used outside the domain of biology. Topics like desease spread, stockmarket behaviour, agriculture, development of societies, climate change to the control of robots are today modeled and inspired by evoutionary principles. Th set of theories analytical models are now so detailed that they are or close to be proven.

Due to this last reason, an evolutionary prediction model given these theories would be rather neat. We could predict - given a set of factors - how humans, may evolve, how a desease will spread or maybe how societies may evolve and in that way use the models to set in countermeasures that can reduce the impact of an unwanted trend. There will never be a psychohistory like Isaac Asimov describes in his foundation series. Still, I believe the predictive gains would outweigh the misses.

As can be expected, this evolutionary prediction idea is not new. Darvin himself set out several predictions and many were proven. Some examples can be found here. There are also several evolutionary and genetic algorithims that are used extensively in many scientific fields - like the ones mentioned above.

What is most exciting though in relation to evolution , is the insights so well described in The Wisdom of Crowds (Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations).



Its central thesis is that a diverse collection of independently-deciding individuals is likely to make certain types of decisions and predictions better than individuals or even experts. To exemplify, lets mention a few cases from book:

1. The best predictor of the next president in the US is a betting market on the next president.
   
2. The best predictor of the number of jelly beans in a jar is a average vote between a diverse group of people.

In many ways this is exactly how evolution descibes it. The best solution is the most likely to survive given a diverse and selfish set to select from. The volume of the crowds is the selector.

This evolutionary crowdsourced prediction method has just started to be implemented. One of the best examples is how google has set up internal crowdsourcing to perform strategic prediction. Nice results! I bet Google will survive for quite some time in the evolutionary game of corporations. ;D

Broken Windows

Have you ever left a cup on the kitchen table and an hour later the whole kitchen is a mess?



If you have you have experienced the broken window theory:

The observation that a few broken windows in an empty building quickly lead to more smashed panes, more vandalism and eventually to break-ins. The tendency for people to behave in a particular way can be strengthened or weakened depending on what they observe others to be doing.

The thory developed by Dr. Keller in the beginning of the eighties has been a role model for crime reduction in several US cities and studies show that it has some sense to it. According to the theory, the prevention of the effect is to stop all kinds of small crimes - like grafitti, shoplifting etc - and violent and serious crime will drop as well. Since the theory was implemented in practice in many US cites (most famous is New York), you can see that violent crime rates dropping in many US cities.



Yes there are critics to the theory, but it still makes sense. Personally, I see that the insight is relevant in so many other areas that affect us - from the private to our business lifes. Hence, a great idea.

Clean you desk, wash your car, put the cups in the washing machine, allow no sloppy work in your team. Who knows what may happen if you don't.