In a recent Forbes article, columnist Rob Asghar interviews me on leadership in the era of coronavirus:
Why do leaders, and their organizations, tend to be blind to future threats? Orlando says it has in part to do with a simple cognitive issue. “I spend a lot of time promoting financial literacy—basic understanding of important concepts like compound interest,” he says. “Human beings have a hard time getting their mind to accept that small growth rates lead to big numbers in a hurry. When the virus first appeared in the US, a lot of people said things like, ‘It’s only a thousand cases, what’s the big deal?;’ That was a basic lack of numeric literacy. They couldn’t project how fast 1,000 could grow to 100,000. It’s hard to comprehend, intuitively, especially if you’ve never seen it happen before.”
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Life is not as predictable as driving. We don’t always know where we’re going. We’re not always in control. Black ice is everywhere. A little something to slow us down in the uncertain world we inhabit may be a lifesaver.
— Barry Schwartz (Swarthmore College)
I’ve been banging the “uncertainty” drum (as opposed to “risk”) for a few months now (see here, here, here, and here):
In his latest book, Keynes’s biographer Lord Robert Skidelsky argues that you just can’t insure against some risks. In fact, some expectations shouldn’t be called risks at all. One of Keynes’s least appreciated contributions, also voiced by his contemporary Frank Knight, was the importance of uncertainty, events in the future that we can’t measure or predict because we don’t have enough information or computational capacity.
Markets depend on prices, and prices depend on information, rational behavior, and predictable distributions of random shocks. When those foundations break down, governments are the only institutions that have the ability to restore order, from central banks injecting liquidity during credit crunches to regulators preventing or monitoring new innovations (be they financial derivatives or oil rigs) with uncertain social costs.
One important example that I haven’t spent enough time talking about is… Continue reading “A Good Economist Knows What He Doesn’t Know”
Continuing the risk vs. uncertainty explanation, here’s my latest post on the Sun-Sentinel site. In the next couple weeks, I’ll delve deeper into these issues and hopefully illuminate some solutions for regulations going forward. For now, check out some excellent perspectives that point the debate in the right direction. I encourage you to read the original articles by each of the three pundits I cited.
Tomorrow I’ll get back to our music countdown. We also have some exciting work by other writers to highlight later this week!