Risk, Strategy and the Nonrational

I am reposting a blog entry that I posted nearly a decade ago about the role of art and the nonrational in evaluating risk. The key is that our nervous systems consume far more data than we are consciously aware, and make their own statistical analyses, using this data, though it is most often communcated up to consciousness in ways that are hard to read, and at times even harder to believe:

I recently got asked by a headhunter to consider a job as a project/implementation manager for a company that specializes in VaR, or “Value at Risk.” That’s high finance talk for software that risk departments in investment banks and other financial institutions use to evaluate the extent of the damage they could bring upon themselves, considering their current strategies. You load up all of your positions and it tells you how risky your portfolio is, and perhaps suggests ways of hedging your bets with others so that your investments might be safe and sound.

During the interview I asked a bit about what went into it. At first I was thinking, wow, this might be my opportunity to find out first hand about strange attractors and self-organizing systems, but the interviewer, an MBA and PhD in mathematics (because you have to be in order to understand this stuff) assured me that VaR uses normalized calculations, just very complex ones. I lost about 95% of my interest at that moment, but I was still curious, so we went on.

He was most confident that in all but very rare cases the calcs could pinpoint and closely predict riskiness, and even alleviate most of the risk due to chaos (the unexpected), by helping to stabilize everything that was easily assimilated into knowable and predictable patterns. This was a few weeks before the financial markets imploded.

I’m sure that Lehman Brothers, Bear Stearns, Wachovia, Fanny and Freddy, for instance, were all using some sort of VaR system to help stave off their own tribulations.

But when I think again about Laura Ward’s “Whistle Me Higher” (see review posted below following this section) and all of the figures that may have been taken as indicators that may have suggested financial peril (i.e. gambling casinos, radioactivity, pandemonium, superstition, the sweeping up of toxic money by people in breakout suits), I am left wondering: who’s got a better system? True enough, like all art, Laura’s work is a bit of a Rorschach, something like the Delphic Oracle pouring out of the mouth of a Python Priestess high on geologic gasses, later interpreted by a throng of specialized priests.

There are many oracular parallels throughout the history of the world, everything from the reading of tea leaves to the bumps on one’s head. The Tao De Ching, for instance, grew out of a practice people in ancient China had of turning over tortoise shells in order to seek a correspondence between static visual patterns and those being lived. Nowadays we have complex visualizations of numerical data, (i.e. graphical display) which attempt to convey information in a way a body can understand, alongside explanations that, after all, mathematics is built upon embodied metaphors, bringing us oddly back to where we had begun, with a little added perspiration (and perhaps precision).

Add to that the concept of expertise that Malcolm Gladwell puts across in Blink, or the theory that our neurologies enable us to make complex statistical-based decisions on an unconscious level, and you begin to gain a kind of insight into the possibility that the somewhat mystified and mistrusted operations of art-making may not be, in many ways, too different from those more reliable domains, such as the sciences.

This does not say that one should listen only to Laura, and ignore the complex, though normalized, mathematical formulas. But we might attempt to think, and experience, for ourselves and learn to weigh both into our judgements, in whatever proportion seems fit for the context. In other words, use the statistics the machine can give you, but also those that we give and receive as a system of biological machines. True, there is much that is quite primitive in there, but tempered by our other facilities (i.e. those that have built the complex mathematical models to begin with), we might find we have a much bigger net to catch things in.

Original post: http://howtowork.blogspot.com/2008/10/var.html

Prior post about Laura’s show:

A few months ago my wife Kathleen and I went to see an old friend’s dance company do a show at The Theater for the New City. We were pleasantly, enormously, surprised at how far Laura Ward’s work had come. While I always admired her quirky inventiveness, disturbing playfulness, her sense of surprise, as well as a number of other qualities, her most recent piece, called “Whistle Me Higher” was not only on par with the best dance performances I’ve ever witnessed, it was an amazingly ambitious collision of mythos centered around the experience of Las Vegas. Not only is the city the great cliche gambling and entertainment capital, but it is not far from sacred native American and nulcear weapons testing sites. All of this comes out in the show, with sparks flying where they strike each other like flint on steel. Petite dancers in glittering patriotic garb grin manically to throbbing electronica, winding at times with lounge and parade tune overtones. There are occasionally theatrical breaks where a woman and man in breakout suits sweep away piles of fallen dollar bills amid fallen dancers, who get carted away in wheelbarrows. The two exchange poetic and philosophic dialog, sometimes strewn with scraps of clinical hypnotic scripts, suggesting, of course, a culture of the entranced, in which any verbal exchange wavers between directive and guesswork.

I had lunch with Laura not long afterward, and asked her how she managed the whole thing, from conceptualization, to composition, choreography, music selection, costumes, set design, you name it. What I found out was that Laura has developed an incredible prediliction for a kind of project management that you just don’t see in people trained by professional organizations. It sounded similar to the way Charles Mingus described leading his band, where the core themes and spirit of the work was embodied by the participants (an amazing collection of performers, I need to mention), who worked out the details through their own impetus.

It’s hard to imagine how something like this could be translated to the ordinary job world (even Laura works a day job, or rather day jobs), but it’s a much different process than the task list and Gantt chart way of doing things, and it’s got me thinking that there has to be a compromise, at least, or so many ways to organize and lead from inception to completion, if only we studied the way we actually did things, tracked the intinsic path of our minds and bodies, and designed a methodology around that. I would want to learn project management from Laura, rather than the PMI, even if they do get Colin Powell as a keynote speaker.

http://howtowork.blogspot.com/2008/09/welcome-back.html