Stockholm (NordSIP) – Sustainability was very prominent on Skagen’s New Year Conference’s agenda this year, covered from several angles, and featured in almost every speaker’s presentation. Almost. One of the main stars, risk guru Nassim Nicholas Taleb (pictured), didn’t seem too preoccupied with sustainability. Climate change didn’t even make it to the top three on his priority list of risks to watch out for; no place for it among pandemics, war, and a new financial meltdown.
But then again, Taleb was careful to explain that uncertainty, which lies at the heart of risk, is very subjective. What appears to be a ‘black swan event’ to you is not necessarily that for someone else. His example being that the 9/11 attack certainly didn’t come as a surprise to the terrorists preparing it, yet for the rest of us, it was a shock and something we hadn’t seen coming or prepared for.
In that context, it made sense that Taleb didn’t consider the current Covid 19 pandemic either to be a ‘black swan event’. “I see the risk of a very strange acute virus spreading throughout the planet”, he wrote back in 2007 (Black Swan), explaining further that “as we travel more on this planet, epidemics will be more acute […] and the successful killer will spread vastly more effectively”.
Taleb reminded us about the varying nature of risk in the vastly different realms of Mediocristan and Extremistan. He warned us against using the wrong map to navigate in the strange country of Extremistan, a landscape including the worlds of finance as well as epidemiology. Using the wrong tools to detect and estimate risks will logically lead to catastrophic decisions, like the ones that precipitated some of the past financial crises or the disastrous handling of the current pandemic in the west.
The wide-spread lack of accountability, both in business and in politics, is worrying Taleb. “Centralized states don’t work well”, according to him. Localism is one of the few mechanisms that can force politicians and business leaders to have more ‘skin in the game’, ensuring at least partial accountability.
He has long been an avid advocate of building resilience into complex systems as the best way to protect them and manage risks. An overoptimized system is not resilient, he insists. You need some redundancy that can work as a buffer when disaster strikes. Your body doesn’t need two kidneys, yet the ‘extra’ one certainly comes in handy sometimes. Many companies with fragile supply chains or balance sheets have learned this lesson the hard way during the pandemic.
Most of these observations were, of course, not new for anyone who’d had the pleasure of reading Taleb’s best-selling books. At the end of his talk, however, he took up a new theme. What kept him awake and worrying at night, he said, was the gradual loss of entrepreneurship in our society. His take was that over-education led to this disastrous development and that we should encourage people, especially young ones, to take more (if small) risks and dare to fail. “You’re obliged to take risks”, he said at the end of his talk, and added, “Teach people to fail!”.
Many wise and inspiring thoughts from Taleb, as expected. And yet, the words that linger on are those: “Some people talk about the climate, I don’t know, I don’t see as much of an existential risk there as others do…” Uncertainty, like beauty, being in the eye of the beholder, is it perchance that the risk expert doesn’t regard what’s happening to our Extremistan of a planet as uncertain anymore?
Image courtesy of SKAGEN