Spero Consulting

We are in the midst of writ­ing a rather long post on the sim­i­lar­i­ties between teenage girls with low blood sugar and daily and intra-​day changes in equity prices. Namely, one can see huge swings in behav­ior, atti­tudes, and mood caused by seem­ingly very minor under­ly­ing events, e.g., “she looked at me the wrong way.” The “she” in this case being an eight-​year-​old sister.

How­ever, we couldn’t com­plete that post because another thought keeps divert­ing our (lim­ited) atten­tion from it.

We were dri­ving with the Chair­man ear­lier today when she men­tioned that the neigh­bor­ing county was hold­ing its fair, and that it was one of the largest county fairs in the state. She went on to explain when­ever she thought of fairs and state fairs she would think of the book, Charlotte’s Web. (We’ve never read it because it was a girls’ book in our youth, and we did not read girls’ books: not then, not now.) As she explained, she par­tic­u­larly liked the chap­ter in which Wilbur the Pig goes to the State Fair, and Tem­ple­ton the Rat tags along in the pig’s cage.

As she explained it, when the rat inves­ti­gated his new sur­round­ings, he thought that he had reached par­adise. He was amazed at the wealth of del­i­ca­cies that he could find on the ground – prob­a­bly things like pop­corn and corn dogs and ice cream cones and maybe deep-​fried Snick­ers bars.

Upon hear­ing that, a ques­tion came imme­di­ately to mind: so, did he stay there?

See, we could imag­ine the rat believ­ing that he had reached the prover­bial land of milk and honey – in this case, half-​eaten corn dogs and ice cream cones as far as the eye could see. It would seem to be an almost lim­it­less sup­ply. Except, except for the fact that state fairs only last for a week or two.

If he decided to stay at the fair­grounds after his swin­ish friend returned to the farm – if that’s where the pig went – then it could eas­ily seem to have been the best deci­sion of his life – for a week or two. Until the cleanup crews came and swept the refuse away, and until he began to face the fol­low­ing 50 weeks of depri­va­tion and hunger.

Despite its com­pletely deter­min­is­tic and cycli­cal nature, the “great bust” or ” great depres­sion” or “great famine” or what­ever phrase he would have used to described the clos­ing of the fair, would have seemed com­pletely unpre­dictable and ran­dom. Tem­ple­ton and his other rodent friends, could eas­ily ask, “who could have ever pre­dicted it? or “how could it be my fault?” Of course, it could be that things that seem to be too good to be true, often are.

Now, we are not com­par­ing the recent (and ongo­ing) finan­cial cri­sis with our imag­ined sce­nario of Tem­ple­ton the Rat’s life. In our mind, eco­nomic crises tend to have endoge­nous causes, i.e., they erupt from within the sys­tem – not from an exter­nal source like a nat­ural dis­as­ter or in this case, the pre­dictable end of a two-​week fair.

How­ever, we do think the sce­nario is instruc­tive. To Tem­ple­ton the Rat, the destruc­tion of his new envi­ron­ment would have seemed like a unpre­dictable tsunami. He wouldn’t have known when or if the good times – the fair – would end, and he wouldn’t have known what he didn’t know, i.e., very impor­tant char­ac­ter­is­tics of his environment.

It’s that aspect that is instruc­tive, and it’s why we think that trad­ing and invest­ing firms should increase the scope of their risk man­age­ment func­tions to the broader func­tion of uncer­tainty man­age­ment. “Uncer­tainty” includes the explicit real­iza­tion that (1) not all ran­dom­ness is mea­sur­able risk and (2) seem­ingly incom­pre­hen­si­ble and uncon­sid­ered bad things can happen.

Note how­ever, that just because such things are (cur­rently) incom­pre­hen­si­ble doesn’t mean that (i) that can’t be pro­tected against and (ii) they can’t even­tu­ally be imag­ined through cre­ativ­ity and rea­son. The for­mer is true because ade­quate pro­tec­tion against known harms can also pro­tect against unknown ones; putting your house on stilts pro­tects against known sea­sonal flood­ing and unknown tsunamis. The lat­ter is true because that is the nature of human progress and the expan­sion of knowl­edge through exper­i­men­ta­tion and con­tem­pla­tion: think of humanity’s rel­a­tively recent dis­cov­er­ies of bac­te­ria and viruses. Inter­ested par­ties look­ing for more should read our essay, Uncer­tainty Man­age­ment or our tongue-​in-​cheek post, The Role for Sur­vival­ists and Depres­sives in Uncer­tainty Man­age­ment.

Finally, please note that we chose our title care­fully. It’s a play on the line from the Robert Burns poem, To a Mouse, On Turn­ing Her Up in Her Nest with the Plough. We Angli­cize the line as: “the best laid plans of mice and men often go awry and leave us noth­ing but grief and pain.” We’d add that less thought­ful plans often don’t turn out that well. Read the entire poem on our quotes page.