Expected Outcome, and working backwards from the Unthinkable

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I was going through my notebook, and I just cannot find the source for one of my notes.

I am pretty sure it is from The Economist, Feb 13, 2010, special report on financial risk, but I just cannot pin it down.

The idea was that to use probabilistic tools not just to work out expected outcomes and their distributions, but also to take the Unthinkable Horrific eventualities, and work backwards to puzzle out the most likely ways that they could come into being.  And then use that to mitigate.

So, if you were considering building a nuclear power plant, you would not simply work forward to calculate expected outcomes and their distributions, but you would assemble a list of Unthinkable Horrific eventualities that relate to nuclear power plant.  You would work backwards, to assemble a list of the ways those horrific eventualities could take place, along with a likelihood (or distribution over variables).  Then you would have the basis for decisions about mitigation under economic constraints.

This cannot be done without complete transparency.  Everyone needs access to your published assumptions, because you need to be called out when your view is too narrow.  Ego and procedural niceties be damned.

Random notes: trees of scenarios, working backward under assumption of failure mode, black swans, alternatives to VAR (value-at-risk): conditional VAR, mean excess loss, mean shortfall, tail VAR.

Afriad of failure, and time slipping away

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Boy howdy, if we are talking about what really gives me pause, I would have to say the fear from seeing time spent in my life without getting closer to worldly success that will leave me rich enough to never worry about money again. I imagine I could have hit it big ten years ago, and so little is accomplished after so many hours spent. But that is crazy, because there is simply no such mechanism that removes all possible risk of financial disaster. Our little family is built on work done everyday and saving 2 bucks and spending only one -- and people who thought they had it made are, because of the housing crash, thrown into a situation they cannot fathom. Better to never get out of practice of working a little bit every day.

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I know in my rational mind that life is plugging away, doing your best, and using every little success as a base to save a little more, and take risks with whatever is left. I make the mistake of dreaming of some dramatic insight that would light above my head like a light bulb -- having this insight in the future, and suddenly, everything I need to do would flow effortlessly like water through a stream bed. But dreaming of that future day takes your focus off the daily work that life is really all about. That fantasy is just a haze over your eyes. Also, I really get a sickening feeling that my daughter's children will inherit a world that is dramatically harder to flourish in, because of ecological disasters. All signs point to water, energy, and food being more scarce for more people in more places. This turned out a little disjointed.

Free will - Search for it among failure

What does free will look like?

• Image by greekadman via Flickr

  Externally Perceived Failure (or at least lack of perceived success)
• Externally Perceived Failure
• Externally Perceived Failure
• Externally Perceived Failure
• Private Moral Success
• Externally Perceived Failure
• Externally Perceived Failure
• Externally Perceived Failure
• Externally Perceived Failure
• Higher, Private Moral Success
• Externally Perceived Failure... etc.
• Rinse and Repeat

Anything else is indistinguishable from simple diversity of habitual actions, or actions triggered by environment. This has to do with having the guts to risk failure, to rise to the challenge of moral goals.

tolerance of catastrophic failure, when groups of people work on complex problems

Comment on Arnold Kling's blog Econlog: "My Ideas on Health Care Delivery"

> The autonomous, self-directed doctors produced by our medical schools are not suited to treating complex patients. Instead, what we need are team players, implementing consistent corporate policies.

This is a _hard_ problem. I am management for a engineering design and manufacturing company. Even with the authority to fire for insubordination, people enjoy being "autonomous, self-directed", and do so against rational self-interest.

Complexity, handled by groups of people, is regularly punctuated with catastrophic failure. Catastrophic failure is only avoided by systematically eliminating _EVERY_ excuse for _ANY_ failure (to the extent you can). This kind of discipline is in very short supply, because it is not usually rewarded in human society.

Human being are _very_ tolerant of catastrophic failure, when it happens to others. And it usually happens to others, and, so, they are usually _very_ tolerant.