Risk Management Reports

Is it possible to act when uncertainty strangles action? The prevailing geo-political and economic question marks create a sense of global anxiety, fed daily by the news media. We are confused about deflation in Japan, stagnation in Europe, economic unraveling in South America and mounting government deficits and economic inertia in the US. We are overwhelmed by the inability of the world to build a reasonable consensus on the threats posed by Iraq and North Korea. The well-known self-confidence of the United States is at a low ebb. Many in the rest of the world now distrust the leadership of the US. Globally we are uncertain which way to turn. That is the situation as I write these words in late March, as pictures of war in Iraq offset the first crocuses and buds of another spring in New England.

Should uncertainty be so constricting? Is our current situation so unusual? History tells us that we always see the problems of our own times as more pressing and critical than in all preceding eras. But have not we always lived with compelling uncertainty? Last month, I printed a quotation from Ortega y Gasset that is worth repeating: “The man with the clear head . . . looks life in the face, realizes that everything is problematic and feels himself lost, as this is the simple truth that to be alive is to feel oneself lost. He who accepts it has already begun to find himself, to be on firm ground.” “To be alive is to feel oneself lost:” now that’s the idea! I printed this quote because I believe that it has significance for the practice of risk management. It can also be a guide to those who represent us in positions of political and economic leadership.

One of the current problems in the management of risk is an excessive fear of volatility and surprise. While some caution is a good thing, too much effort is devoted to avoiding what is entirely natural. Do we need all those abstruse econometric models whose designers insist will stabilize everything in the financial markets? Too much time is spent trying to “transfer” our risks to others, creating a false sense of security. Too much time is spent avoiding surprises, those unusual events that have the capacity to stimulate our creativity and resilience as well as hurt our pocketbooks. We expect our “leaders” to know everything and they in turn must present a façade of superior knowledge. The mantra is “Trust us, we know the answers. We are privy to information that we cannot share with you.” How seldom have I heard a politician or business leader honestly say, “ I really don’t know, but we are proceeding on the basis of current information?”

What Ortega y Gasset proposes is honesty about our uncertainties. They should not confound but refresh and challenge us. Rather than be transfixed by our uncertainties, relish them!

One of my readers, Talmadge Birdsey, the head the North Branch School, an independent middle school for grades 7 - 9, in Ripton, Vermont, picked up on last month’s quote. In January, he challenged his students to think about “knowing and not knowing, and its corollary, questions and answers.” He then used the quote to stimulate their minds. The responses are enlightening for all of us in older generations. Tal summarized them: “Questions are like doors to other places. Being willing to accept and embrace ‘not knowing’, and to say with authority and hunger that ‘I do not know’ is the first step towards wisdom and knowing.” Here are a few of his students’ observations:

• Once you are lost in the maze of questions, you must say, “I am lost: Help.” If you don’t you are lost forever. Virginia Carver
• I think he (Gasset) is saying that seeing clearly is seeing the whole thing, the good and bad. Do I see clearly? I don’t think so, not yet. Annabelle Maroney
• The first step towards finding yourself again is realizing that you are lost. Having realized that, you must accept it. Then ask your peers for help. Nick Rutherford
• No one knows everything and as soon as you accept that the sooner you will learn more, but you will never know everything. Ethan Lanpher
• In order to truly know something you must confront the opposite and then look for a change. Steve Hoyt
• You have to feel lost and not knowing in order to live. If you fill your head with “I know everything” then you can’t let anything else in. Debbie Daniels
• To have a clear mind means that you also have more room in it to fill – with questions, thoughts of the past or present. But to fill a mind, you must venture forward. Even if one is walking on a shaky thin line, the only way to get to firm ground is to look life in the face and move forward. Najat Croll

I hardly suggest a Panglossian attitude that we live in the “best of all possible worlds” or that we disregard the multiple downside outcomes can occur today, yet we must shed the handcuffs that cripple decision-making. I am encouraged about the future of this country (and the world) when some of its future leaders show such understanding of the role of uncertainty in their lives and the need for a constant search for new knowledge.

I lifted a Latin quote (author unknown) from Nassim Taleb’s contrarian masterpiece, Fooled by Randomness: felix qui potuit cognoscere causas. “Happy is he who understands what is behind things.” Happy is this Felix who understands that uncertainty lies behind everything we do.

Perhaps the best coda to this contemplative essay on uncertainty is a haiku that was circulated some years ago about the tribulations of dealing with a computer. No author has yet acknowledged this creation:

With the searching comes loss

And the presence of absence:

"Document not found."