Tag Archives: Complexity

Linked by Albert-Laszlo Barabasi

Summary

  1. This book’s aim is simple. To help you understand what networks are, how they form, what they look like, and how they evolve. This is a new framework, a web-based and interconnected view, for understanding the world and how to navigate it. Networks are present everywhere, we just need an eye to spot them

Key Takeaways

  1. Amazingly simple and far reaching natural laws govern the structure and evolution of all the complex systems around us. This book will help us understand what those are and why networks from cells to the internet evolve similarly 
  2. Complexity doesn’t allow for us to understand how the parts make the whole. Reductionism breaks down with complexity 
  3. Everything is linked to everything else. We are only beginning to understand the role of complexity in nature and our lives. Networks will come to dominate our understanding of the world and how to navigate it
  4. The construction and structure of graphs (networks) are key to understanding the complex world around us. Small changes in the nodes or links open up new possibilities to emerge. Links (bridges, relationships, etc.) connect nodes. Although the networks all represent different realities, they are all composed of nodes and links. When you randomly add enough links and nodes, something special emerges. Such discipline has a different name for it, phase transition or community, but the network changes so that clusters of nodes connect everyone. 1 link per node is the critical threshold. Anything more than that and you get an interconnected web that communicates. Anything less, and you have a disparate network that doesn’t. As the number of links increases, the number of nodes left out decreases exponentially. Nature does not take risks. By staying close to the threshold. She builds in a large margin of safety 
  5. The power of the web is in the links. Geographic distance is no longer the barrier it once was
  6. Clustering and small world networks are extremely important characteristics. These characteristics help show that week links such as acquaintances help make the network more robust more efficient and more interconnected with fewer links. Take advantage of this in your life by maintaining many weak ties which can expose you to new groups and new information. These dense clusters are considered hubs “connectors” and destroy the random world theory. They are so well connected that they shorten the distance on average between nodes 
  7. The appearance of power laws (such as those exhibited by phase transitions) indicate a transition from disorder to order
  8. Networks always display growth which means the static random hypothesis no longer holds true and nodes are always being added
  9. In real life, linking is never random. Popularity leads to more popularity which leads to certain nodes being exponentially larger and more connected than others. Think Google, Amazon, Facebook and a fat tail of everyone else. This is also known as preferential attachment
  10. Most networks are not a winner take all. the rich get richer scenario. Instead, they are a fitness driven function that allows for the superior product to displace the incumbent
  11. In a networked economy, the hubs continuously get larger. This leads to M&A, making the large even larger. Understanding network effects is the key to surviving in a rapidly adopting, interconnected world 
  12. Too much control and organization slows things down today where power lies in links and ideas. This shifts organization from hierarchical to web-based. From top-down and linear to decentralized, flexible, and robust 
  13. In markets, you aim to drive the hardest possible bargain. But, in networks, you aim for win/win, relationships, reliance and indebtedness over the long haul. 

What I got out of it

  1. A great overview on networks and how prevalent they are in our every day lives. Understanding and honoring them will be valuable regardless of context, industry, or situation

Latticework: The New Investing by Robert Hagstrom

Summary

  1. Latticework: success in investing based on a working knowledge of a variety of disciplines

Key Takeaways

  1. Latticework
    1. Latticework is itself a metaphor. And on the surface, quite a simple one at that. Everyone knows what latticework is, and most people have some degree of firsthand experience with it. There is probably not a do-it-yourselfer in America who hasn’t made good use of a four-by-eight sheet of latticework at some point. We  use it to decorate fences, to create shade over patios, and to support climbing plants. It is but a very small stretch to envision a metaphorical lattice as the support structure for organizing a set of mental concepts
  2. Physics – Equilibrium
    1. Physics is the science that investigates matter, energy, and the interaction between them – the study, in other words, of how our universe works. It encompasses all the forces that control motion, sound, light, heat, electricity, and magnetism, and their occurrence in all forms, from the smallest subatomic particles to entire solar systems. It is the intellectual foundation of many well-recognized principles such as gravitation and such mind-boggling concepts as quantum mechanics and relativity.
    2. Equilibrium is defined as a state of balance between opposing forces, powers, or influences. An equilibrium model typically identifies a system that is at rest; this is called “static equilibrium.”
    3. The concept of equilibrium is so deeply embedded in our theory of economics and the stock market, it is difficult to imagine any other idea of how these systems could possible work…One place where the question is being raised is the Santa Fe Institute, where scientists from several disciplines are studying complex adaptive systems – those systems with many interacting parts that are continually changing their behavior in response to changes in the environment…If a CAS is, by definition, continuously adapting, it is impossible for any such system, including the stock market, ever to reach a state of perfect equilibrium. What does that mean for the stock market? It throws the classic theories of economic equilibrium into serious question. The standard equilibrium theory is rational, mechanistic, and efficient. It assumes that identical individual investors share rational expectations about stock prices and then efficiently discount that information into the market. It further assumes there are no profitable strategies available that are not already priced into the market. The counterview from SFI suggests the opposite: a market that is not rational, is organic rather than mechanistic, and is imperfectly efficient. 
    4. The SFI pointed out 4 distinct features they observed about the economy: dispersed interaction, no global controller, continual adaptation, out of equilibrium dynamics. 
  3. Biology – Evolution
    1. What we are learning is that studying economic and financial systems is very similar to studying biological systems. The central concept for both is the notion of change, what biologists call evolution. The models we use to explain the evolution of financial strategies are mathematically similar to the equations biologists use to study populations of predator-prey systems, competing systems, or symbiotic systems. 
    2. Complex systems must be studied as a whole, not in individual parts, because the behavior of the system is greater than the sum of the parts. The old science was concerned with understanding the laws of being. The new science is concerned with the laws of becoming
  4. Social Sciences – Complexity, Complex Adaptive Systems, Self-Organized Criticality
    1. Although Johnson’s maze is a simple problem-solving computer simulation, it does demonstrate emergent behavior. It also leads us to better understand the essential characteristic a self-organizing system must contain in order to produce emergent behavior. That characteristic is diversity. The collective solution, Johnson explains, is robust if the individual contributions to the solution represent a broad diversity of experience in the problem at hand. Interestingly, Johnson discovered that the collective solution is actually degraded if the system is limited to only high-performing people. It appears that the diverse collective is better at adapting to unexpected changes in structure. 
      1. Folly to think you can eliminate every waste, every performer who doesn’t meet the highest bar, and excel and survive. Can shift the entire bell curve to the right, but you still need the full spectrum
      2. Notes: We have observed anecdotal evidence of emergent behavior, perhaps without realizing what we were seeing. The recent bestseller, Blind Man’s Bluff: The Untold Story of american Submarine Espionage, presents a very compelling example of emergence. Early in the book, the authors relate the story of the 1966 crash of a B-52 bomber carrying four atomic bombs. Three of the four bombs were soon recovered, but a fourth remained missing, with the Soviets quickly closing in. A naval engineer named John Craven was given the task of locating the missing bomb. He constructed several different scenarios of what possibly could have happened to the fourth bomb and asked the members of the salvage team to wager a bet on where they thought the bomb could be. He then ran each possible location through a computer formula and – without ever going to sea! – was able to pinpoint the exact location of the bomb based on a collective solution
    2. It is when the agents in the system do not have similar concepts about the possible choices that the system is in danger of becoming unstable. And that is clearly the case in the stock market…The value of this way of looking at complex systems is that if we know why they become unstable, then we have a clear path to a solution, to finding ways to reduce overall instability. One implication, Richards says, is that we should be considering the belief structures underlying the various mental concepts, and not the specifics of the choices. Another is to acknowledge that if mutual knowledge fails, the problem may center on how knowledge is transferred in the system. 
  5. Psychology – Mr. Market, Complexity, Information
    1. Another aspect of behavioral finance is what some psychologists refer to as mental accounting – our tendency to think of money in different categories, putting our funds into separate “mental accounts,” depending on circumstances. Mental accounting is the reason we are far more willing to gamble with our year-end bonus than our monthly salary, especially if it is higher than anticipated. It is also one further reason why we stubbornly hold onto stocks that are doing badly; the loss doesn’t feel like a loss until we sell
  6. Philosophy – Pragmatism
    1. Strictly for organizational simplicity, we can separate the study of philosophy into 3 broad categories. First, critical thinking as it applies to the general nature of the world is called “metaphysics”…Metaphysics means “beyond physics.” When philosophers discuss metaphysical questions, they are describing ideas that exist independently from our own space and time. Examples include the concepts of God and the afterlife. These are not tangible events like tables and chairs but rather abstract ideas that metaphysical questions readily concede the existence of the world that surrounds us but disagree about the essential nature and meaning of the world. The second body of philosophical inquiry is the investigation of 3 related areas: aesthetics, ethics, and politics. Aesthetics is the theory of beauty. Philosophers who engage in aesthetic discussions are trying to ascertain what it is that people find beautiful, whether it be in the objects they observe or in the state of mind they achieve. This study of the beautiful should not be thought of as a superficial inquiry, because how we conceive beauty can affect our judgments of what is right and wrong, what is the correct political order, and how people should live. Ethics is the philosophical branch that studies the issues of right and wrong. It asks what is moral and what is immoral, what behavior is appropriate and inappropriate. Ethics makes inquiries into the activities people undertake, the judgments they make, the values they hold, and the character they aspire to achieve. Closely connected to the idea of ethics is the philosophy of politics. Whereas ethics investigates what is good or right at the individual level, politics investigates what is good or right at the societal level. Political philosophy is a debate over how societies should be organized, what laws should be passed, and what connections people should have to these societal organizations. Epistemology, the third body of inquiry, is the branch of philosophy that seeks to understand the limits and nature of knowledge. The term itself comes from two Greek words: episteme, meaning “knowledge,” and logos, which literally means “discourse” and more broadly refers to any kind of study or intellectual investigation. Epistemology, then, is the study of the theory of knowledge. To put it simply, when we make an epistemological inquiry, we are thinking about thinking. When philosophers think about knowledge, they are trying to discover what kinds of things are knowable, what constitutes knowledge (as opposed to beliefs), how it is acquired (innately or empirically, through experience), and how we can say that we know a thing.
    2. For pragmatism, anyone who seeks to determine the true definition of a belief should look not at the belief itself but at the actions that result from it. He called the proposition “pragmatism,” a term, he pointed out, with the same root as practice or practical, thus cementing his view that the meaning of an idea is the same as its practical results. “Our idea of anything, Peirce explained, “is our idea of its sensible effects.” In his classic 1878 paper, “How to Make Our Ideas Clear,” Peirce continued: “The whole function of thought is to produce habits of action. To develop its meaning, we have, therefore, simply to determine what habits it produces, for what a thing means is simply what habits it involves.” 
    3. A belief is true, James said, because holding it puts a person into more useful relations with the world…People should ask what practical effects come from holding one philosophical view over another
    4. If truth ad value are determined by their practical applications in the world, then it follows that truth will change as circumstances change and as new discoveries about the world are made. Our understanding of truth evolves. Darwin smiles.
    5. So we can say that pragmatism is a process that allows people to navigate an uncertain world without becoming stranded on the desert island of absolutes. Pragmatism has no prejudices, dogmas, or rigid canons. It will entertain any hypothesis and consider any evidence. If you need facts, take the facts. If you need religion, take religion. If you need to experiment, go experiment. “In short, pragmatism widens the field of search for God,” says James. “Her only test of probable truth is what works best in the way of leading us.” 
    6. Pragmatism, in summary, is not a philosophy as much as it is a way of doing philosophy. It thrives on open minds, and gleefully invites experimentation. It rejects rigidity and dogma; it welcomes new ideas. It insists that all possibilities should be considered, without prejudice, for important new insights often come disguised as frivolous, even silly notions. it seeks new understanding by redefining old problems. 
    7. One of the secret to Bill Miller’s success is his desire to take a Rubik’s Cube approach to investing. He enthusiastically examines every issue from every possible angle, from every possible discipline, to get the best possible description – or redescription – of what is going on. Only then does he feel in a position to explain. To his investigation he brings insights from many fields…He continually studies physics, biology, and social science research, searching for ideas that will help him become a better investor…In an environment of rapid change, the flexible mind will always prevail over the rigid and absolute…Because you recognize patterns, you are less afraid of sudden changes. With a perpetually open mind that relishes new ideas and knows what to do with them, you are set firmly on the right path. 
  7. Literature – self-education of a Latticework through books, Adler’s Active Reading
    1. We must educate ourselves and the vehicle for doing so is a book supplemented with all other media both traditional and modern…So we are talking about learning to become discriminating readers: to analyze what you read, to evaluate its worth in the larger picture, and to either reject it or incorporate it into your own latticework of mental models…We can all acquire new insights through reading if we perfect the skill of reading thoughtfully. The benefits are profound: not only will you substantially add to your working knowledge of various fields, you will at the same time sharpen your skill at critical thinking.
    2. The central purpose of reading a book, Adler believes, is to gain understanding…This is not the same as reading for information. 
    3. Reading that makes you stop and think is the path to greater understanding – not solely because of what you are reading but also because of the process of reflection in which you are engaged. You are learning from your own thinking as well as from the author’s ideas. You are making new connections. Adler describes as the difference between learning by instruction and learning by discovery. It’s evident of in the satisfaction we feel when we figure out something on our own, instead of being told the answer. Receiving the answer might solve the immediate problem, but discovering the answer by your own investigation has a much more powerful effect on your overall understanding. 
    4. Adler proposes that all active readers need to keep 4 fundamental questions in mind: what is the book about as a whole, what is being said in detail, is the book true, in whole or in part, what of it? The heart of Adler’s process involves 4 levels of reading: elementary, inspectional, analytical, and syntopical. Each level is a necessary foundation for the next, and the entire process is cumulative. 
      1. Elementary reading is the most basic level, the one we achieve in elementary education
      2. In inspectional reading, the second level, the emphasis is on time and the goal is to determine, as quickly as possible, what the book is about. It has two levels: prereading and superficial reading. Prereading is a fast review to determine whether a book deserves a more careful reading. Look at the table of contents, index, how much can you learn about the main themes through this overview. Next, Adler recommends systematic skimming. Read a few paragraphs here and there, read the author’s conclusion. These two activities should take between 30-60 minutes and help you determine if it is worth your time to read the book
      3. Analytical reading is the most thorough and complete way to absorb a book. Through analytical reading you will answer what is the book about as a whole and in detail and provide you the most complete answer to if the book is true. It has  goals: develop a detailed sense of what the book contains, interpret the contents by examining the author’s own particular point of view on the subject; and to analyze the author’s success in presenting that point of view convincingly. Take notes, make an outline, write in your own words what you think the book is about, write the author’s main arguments
      4. The fourth and highest level is what Adler calls syntopical reading, or comparative reading. In this level of reading, we are interested in learning about a certain subject, and to do so we compare and contrast the works of several authors rather than focusing on just one work by one another. Adler considers this the most demanding and most complex level of reading. It involves two challenges: first, searching for possible books on the subject; and then deciding, after finding them, which books should be read
    5. The challenge for us as readers is to receive that knowledge and integrate it into our latticework of mental models. How well we are able to do so is a function of two very separate considerations: the author’s ability to explain, and our skills as careful, thoughtful readers. We have little control over the first, other than to discard one particular book in favor of another, but the second is completely within our control
    6. I believe in…mastering the best that other people have figured out, [rather than] sitting down and trying to dream it up yourself…You won’t find it that hard if you go at it Darwinlike, step by step with curious persistence. You’ll be amazed at how good you can get…It’s a huge mistake not to absorb elementary worldly wisdom…Your life will be enriched – not only financially but in a host of other ways – if you do. – Charlie Munger, Poor Charlie’s Almanack 
  8. Decision Making – Continuously add more building blocks to your knowledge base in order to build more robust mental models
    1. Failures to explain are caused by our failures to describe
    2. Our institutions of higher learning may separate knowledge into categories, but wisdom is what unites them.

What I got out of it

  1. A beautiful book on how to approach being a multidisciplinary thinker as it applies to investing. 

Worlds Hidden in Plain Sight: Thirty Years of Complexity Thinking at the Santa Fe Institute by David Krakauer

Summary

  1. Over the last three decades, the Santa Fe Institute and its network of researchers have been pursuing a revolution in science. This volume collects essays from the past thirty years of research, in which contributors explain in clear and accessible language many of the deepest challenges and insights of complexity science.

Key Takeaways

  1. Things can be hidden in space, and they can be hidden in time…But the way in which complex phenomena are hidden, beyond masking space and time, is through non-linearity, randomness, collective dynamics, hierarchy, and emergence – a deck of attributes that have proved ill suited to our intuitive and augmented abilities to grasp and to comprehend.
  2. Linearity should not be an issue. Economic systems are obviously nonlinear, as are many, if not most, systems of current interest in physics. A more controversial question concerns the direction of feedback. Whereas a strictly linear system can have only negative feedback if divergence is to be avoided, positive feedback can occur in nonlinear systems of a saturation mechanism operates. Such systems tend to have multiple equilibria or resting points and great sensitivity to initial conditions. Traditionalists find it hard to relinquish uniqueness and global stability, but physicists are easily convinced and find positive feedback natural.
  3. In 1966, Robert Paine introduced the concept of “keystone species,” top predators such as starfish and sea otters, whose removal can lead to cascading effects in system properties. Since then, the concept has been extended to species other than top predators. Some, for instance, consider the distemper virus that kills lions in Africa to be a keystone species. Levin cites “a quarter century of research on keystone species – predators, competitors, mutualists, pathogens, among others – demonstrates a diversity of situations in which individual species play critical roles, at least in determining community structure.
  4. The authors wish to thank our co-organizer, Jennifer Dunne, for reminding us that the laws of life are hierarchical and must look upward to ecology as well as downward to physics and chemistry.
  5. Ludwig Boltzmann, in about 1884, coined the term ergodic for situations with identical time averages and ensemble averages. Not every situation is like this, however; there exist “nonergodic” situations as well, and these are often as counterintuitive as the ergodic situations seem trivial. So, do we have to be more careful when we talk about expected returns and average performances? There are two averages, not one – two ways of characterizing an investment, two quantities with different meanings…Herein lies the danger: if we don’t actually play many identical games at once, then such an average only has practical relevance if it is identical to the quantity we’re interested in, often the time average. There may be many possible paths from here into the future, but only one will be realized. In our game, you are risking your entire wealth, which obviously cannot be done many times simultaneously, so the ensemble average is not really the relevant quantity. Technically, it stems from a thought experiment involving other universes
  6. What is good for groups is not always good for the individuals comprising them. For example, both multicellular organisms and social insect colonies are functionally specialized and hierarchically organized collectives that are highly successful in maintaining and transmitting accumulated knowledge, in the form of genetic instructions, to the next generation; but they also have little regard for the fates of most cells or insects. This same pattern is apparent, in an attenuated way, in human societies. For example, economist George Steckel and anthropologist Jerome Rose (2002) examined health indicators for Prehispanic New World societies and found that the median health of individuals declined as societies grew more complex. This suggests social complexity emerges from mechanisms that promote coordinated behavior even if it is not in the best interest of each individual. In the case of multi-celled organisms and insect colonies, the solution was to make the coordinating individuals (cells, insects) genetics clones or siblings. That way, genes that promote cooperation could spread even if the most cooperative individuals left no offspring.
  7. Instead of assuming agents were perfectly rational, we allowed there were limits to how smart they were. Instead of assuming the economy displayed diminishing returns (negative feedback), we allowed that it might contain increasing returns (positive feedback). Instead of assuming the economy was a mechanistic system operating at equilibrium, we saw it as an ecology – of actions, strategies, and beliefs competing for survival – perpetually changing as new behaviors were discovered.
  8. Thermodynamics is the study of the macroscopic behavior of systems exchanging work and heat with connected systems or their environment. The four laws of thermodynamics all operate on average quantities defined at equilibrium – temperature, pressure, entropy, volume, and energy. These macroscopic variables exist in fundamental relationships with each other, as expressed, for example, in the ideal gas law. Thermodynamics is an extremely powerful framework as it provides experimentalists with explicit, principle recommendations about what variables should be measured and how they are expected to change relative to each other, but it is not a dynamical theory and offers no explanations for the mechanistic origins of the macroscopic variables it privileges.
  9. This introduces two important concepts: first, the idea of scaling, which refers to how measurable properties of a system change with its size; second, the concept of economies of scale. The latter means that, as cities grow, they need less of something per person: roads, sewers, or gas stations, for example
  10. The study of complex systems, like all of science, is a search for order. Traditionally, science seeks order by understanding the simplest parts of a system. How does a single gas particle behave given a certain temperature? Which gene in our DNA determines eye color? Scientists then try to develop theories that explain more general observations based on their detailed understanding of the individual parts.
  11. We know from the application of the scientific method – that is, from observation, then explanation, then prediction, and finally verification – that gravity causes the apple to move toward the ground at a specific and constant rate of acceleration

What I got out of it

  1. A series of articles on complexity that helps give a broad overview of the field and how far it has come in the last several decades. The physical book also has some fun and interesting ways to help categorize and organize the chapters and knowledge 

Non-Zero: The Logic of Human Destiny by Robert Wright

Summary

  1. The tendencies of basic biological, social and technological evolutions can be explained in scientific, physical terms. Directionality seems to be imputed and the author argues that Non-Zero Sum games has been the driving force for biological life. The core of biological and human history can be traced back to more numerous, larger, more elaborate, more interdependent forms of NZS games being played. “Non-Zero Sumness” can be thought of as the tendency which gives time its directionality, helping explain how NZS was likely to lead to complex life forms and technology which further enriched how these life forms interacted 

Key Takeaways

  1. Game theory was developed by von Neumann. Zero sum games are games in which one person’s win means another person’s loss (sports) whereas Non-Zero sum games aren’t necessarily negative for one party. The authors argue that NZS games are a driving force for the world has been shaped. NZS games can be win/win, win/lose, lose/win, or lose/lose
  2. Human history has shown that technological advancements allow for richer and more widespread NZS thinking and actions to occur, and social structures evolve from these interactions to more fully capitalize on these positive sum interactions, increasing social complexity and depth. NZS is not always win/win, but it trends in that direction and this causes people to become more embedded in webs of mutual interdependence. 
  3. Hunting large prey requires coordination which spurs altruism, reciprocity, social complexity, and positive sum games. “The best place to store your excess food is somebody else’s stomach.”
  4. The author argues that population density is the overriding factor in predicting technological evolution and social complexity in a group of people
  5. A quick summary of NZS would be the extent to which outcomes are shared, also known as skin in the game
  6. Writing builds trust in a society (lenders don’t have to worry about debtors cheating them and vice versa, etc.) which helps streamline much of life and leads to positive sum outcomes
  7. Increasing NZS leads to a more interconnected and codependent world where you not only care about your local neighbors but also the global community as trade commerce and ideas seamlessly transfer from one area to another
  8. Increasing seamlessness in travel, commerce, communication, mostly driven by improvements in technology lead to new areas and opportunities for NZS, and how open and willing countries are to adopt the new technology and drive it’s future success and ability to capitalize on these positive sum games.
  9. Technology, freedom, and increasing wealth seem to be inherently and intimately intertwined 
  10. NZS is responsible for reciprocal altruism love has evolution selected for those who could cooperate with each other and survive and this helped in hard times when others with chip in to pay back your favor
  11. Time’s arrow does not necessarily point towards complexity but competition, survival, and natural selection push species to become more adapted and more complex in their thinking and behavior just in order to survive. If there was no competition and no threat of being eaten, animals don’t naturally just become more complex. Positive feedback at play
  12. Natural selection beautifully fills in open inches
  13. Truly valuable traits evolve independently. For example eyesight and reciprocal altruism evolved in multiple times and species. These are prime behaviors that have helped species survive for eons and are traits that we can bank on

What I got out of it

  1. Really interesting idea that non-zero games, technological advancement, win/win have spurred evolution towards complexity in behavior 

V > Λ: The Inverted Hierarchy



If you’d prefer to listen to this article, use the player below.

You can also find more of my articles in audio version at Listle

Increasing Returns and Path Dependence in the Economy by Brian Arthur

Summary

  1. The idea of increasing returns has come up every few decades but Brian Arthur’s precise and fully-modeled papers caused us to clearly understand what kinds of models have what kinds of implications. One outstanding characteristic of Arthur’s viewpoint is emphatically dynamic in nature. Learning by using or doing plays an essential role, as opposed to static examples of returns to scale (those based on volume-area relations). The object of study is a history. Another distinctive feature of most of the work is its stochastic character. This permits emphasis on the importance of random deviations for long-run tendencies. Other tendencies include the multiplicity of possible long-run states, depending on initial conditions and on random fluctuations over time, and the specialization (in terms of process or geographical location) in an outcome achieved. Increasing returns may also serve as a reinforcement for early leading positions and so act in a manner parallel to more standard forms of increasing returns. A similar phenomenon occurs even in individual learning, where again successes reinforce some courses of action and inhibit others, thereby causing the first to be used more intensively, and so forth. There are in all of these models opposing tendencies, some toward achieving an optimum, some toward locking in on inefficient forms of behavior. 

 Key Takeaways

  1. The papers here reflect two convictions I have held since I started work in this area. The first is that increasing returns problems tend to show common properties and raise similar difficulties and issues wherever they occur in economics. The second is that the key obstacle to an increasing returns economics has been the “selection problem” – determining how an equilibrium comes to be selected over time when there are multiple equilibria to choose from. Thus the papers here explore these common properties – common themes – of increasing returns in depth. And several of them develop methods, mostly probabilistic, to solve the crucial problem of equilibrium selection. 
  2. Arthur studied electrical engineering so was vaguely familiar with positive feedback already and became more intrigued when he read about the history of the discovery of the structure of DNA and read whatever he could about molecular biology and enzyme reactions and followed these threads back to the domain of physics. In this work, outcomes were not predictable, problems might have more than one solution, and chance events might determine the future rather than be average away. The key to this work, I realized, lay not in the domain of the science it was dealing with, whether laser theory, or thermodynamics, or enzyme kinetics. It lay in the fact that these were processes driven by some form of self-reinforcement, or positive feedback, or cumulative causation – processes, in economics terms that were driven by nonconvexities. Here was a framework that could handle increasing returns. 
    1. Great discoveries tend to come from outside the field 
  3. Polya Process – path-dependent  process in probability theory 
  4. In looking back on the difficulties in publishing these papers, I realize that I was naive in expecting that they would be welcomed immediately in the journals. The field of economics is notoriously slow to open itself to ideas that are different. The problem, I believe is not that journal editors are hostile to new ideas. The lack of openness stems instead from a belief embedded deep within our profession that economics consists of rigorous deductions based on a fixed set of foundational assumptions about human behavior and economic institutions. If the assumptions that mirror reality are indeed etched in marble somewhere, and apply uniformly to all economics problems, and we know what they are, there is of course no need to explore the consequences of others. But this is not the case. The assumptions economists need to use vary with the context of the problem and cannot be reduced to a standard set. Yet, at any time in the profession, a standard set seems to dominate. I am sure this state of affairs is unhealthy. It deters many economists, especially younger ones, from attempting approaches or problems that are different. It encourages use of the standard assumptions in applications where they are not appropriate. And it leaves us open to the charge that economics is rigorous deduction based upon faulty assumptions. At this stage of its development economics does not need orthodoxy and narrowness; it needs openness and courage. 
  5. I did not set out with an intended direction but if I have had a constant purpose it is to show that transformation, change, and messiness are natural in the economy. The increasing-returns world in economics is a world where dynamics, not statics, are natural; a world of evolution rather than equilibrium; a world or probability and chance events. Above all, it is a world of process and pattern change
  6. Positive Feedbacks in the Economy
    1. Diminishing returns, what conventional economic theory is built around, imply a single economic equilibrium point for the economy, but positive feedback – increasing returns – makes for many possible equilibrium points. There is no guarantee that the particular economic outcome selected from among the many alternatives will be the “best” one. Furthermore, once random economic events select a particular path, the choice may become locked-in regardless of the advantages of the alternatives
    2. Increasing returns do not apply across the board – agriculture and mining (resource-based portions) – are subject to diminishing returns caused by limited amounts of fertile land or high quality deposits. However, areas of the economy which are knowledge-based are largely subject to increasing returns. Even the production of aircraft is subject to increasing returns – it takes a large initial investment but each plane after that is only a fraction of the initial cost. In addition, producing more units means gaining more experience in the manufacturing process and achieving greater understanding of how to produce additional units even more cheaply. Moreover, experience gained with one product or technology can make it easier to produce new products incorporating similar or related technologies. Not only do the costs of producing high-technology products fall as a company makes more of them, but the benefits of using them increase. Many items such as computers or telecommunications equipment work in networks that require compatibility; when one brand gains a significant market share, people have a strong incentive to buy more of the same product so as to be able to exchange information with those using it already. 
    3. Timing is important too in the sense that getting into an industry that is close to being locked in makes little sense. However, early superiority does not correlate with long term fitness 
    4. Like punctuated equilibrium, most of the time the perturbations are averaged away but once in a while they become all important in tilting parts of the economy into new structures and patterns that are then preserved and built on in a fresh layer of development 
  7. Competing technologies, increasing returns, and lock-in by historical events 
    1. There is an indeterminacy of outcome, nonergodicity (path dependence where small events cumulate to cause the systems to gravitate towards that outcome rather than others). There may be potential inefficiency and nonpredictability. Although individual choices are rational, there is no guarantee that the side selected is, from any long term viewpoint, the better of the two. The dynamics thus take on an evolutionary flavor with a “founder effect” mechanism akin to that in genetics 
  8. Path dependent processes and the emergence of macrostructure 
    1. Many situations dominated by increasing returns are most usefully modeled as dynamic processes with random events and natural positive feedbacks or nonlinearities. We call these nonlinear Polya processes and show that they can model a wide variety of increasing returns and positive feedback problems. In the presence of increasing returns or self reinforcement, a nonlinear Polya process typically displays a multiplicity if possible asymptotic outcomes. Early random fluctuations cumulate and are magnified or attenuated by the inherent nonlinearities of the process. By studying how these build up as the dynamics of the process unfold over time, we can observe how an asymptotic outcomes becomes “selected” over time 
    2. Very often individual technologies show increasing returns to adoption – the more they are adopted the more is learned about them; in then the more they are improved, and the more attractive they become. Very often, too, there are several technologies that compete for shares of a “market” of potential adopters 
  9. Industry location patterns and the importance of history 
    1. This study indeed shows that it is possible to put a theoretical basis under the historical-accident-plus-agglomeration argument (mostly arbitrary location for determining where a city is established but then more people flock to it, it receives more investment, more buildings come up, etc. which leads to agglomeration and increasing returns).
  10. Information Contagion
    1. When a prospective buyer is making purchasing decisions among several available technically-based products, choosing among different computer workstations, say, they often augment whatever publicly available information they can find by asking previous purchasers about their experiences – which product they chose, and how it is working for them. This is a natural and reasonable procedure; it adds information that is hard to come by otherwise. But it also introduces an “information feedback” into the process whereby products compete for market share. The products new purchasers learn about depend on which products the previous purchasers “polled” or sampled and decided to buy. They are therefore likely to learn more about a commonly purchased product than one with few previous users. Hence, where buyers are risk-averse and tend to favor products they know more about, products that by chance win market share early on gain an information-feedback advantage. Under certain circumstances a product may come to dominate by this advantage alone. This is the information contagion phenomenon
  11. Self-Reinforcing Mechanisms in Economics
    1. Dynamical systems of the self-reinforcing or autocatalytic type – systems with local positive feedbacks – in physics, chemical kinetics, and theoretical biology tend to possess a multiplicity of asymptotic states or possible “emergent structures”. The initial starting state combined with early random events or fluctuations acts to push the dynamics into the domain of one of these asymptotic states and thus to “select” the structure that the system eventually “locks into”. 
    2. Self-reinforcing mechanisms are variants of or derive from four generic sources:
      1. Large set up or fixed costs (which give the advantage of falling unit costs to increased output)
      2. Learning effects (which act to improve products or lower their cost as their prevalence increases)
      3. Coordination effects (which confer advantages to “going along” with other economic agents taking similar action)
      4. Self-reinforcing expectations (where increased prevalence on the market enhances beliefs of further prevalence)
    3. Besides these 4 properties, we might note other analogies with physical and biological systems. The market starts out even symmetric, yet it ends up asymmetric: there is “symmetry breaking.” An “order” or pattern in market shares “emerges” through initial market “fluctuations.” The two technologies compete to occupy one “niche” and the one that gets ahead exercises “competitive exclusion” on its rival. And if one technology is inherently superior and appeals to a larger proportion of purchasers, it is more likely to persist: it possesses “selectional advantage.”
    4. Some more characteristics: multiple equilibria (multiple “solutions” are possible but the outcome is indeterminate, not unique and predictable); possible inefficiency, lock-in, path dependence
    5. We can say that the particular equilibrium is locked in to a degree measurable by the minimum cost to effect changeover to an alternative equilibrium. In many economic systems, lock-in happens dynamically, as sequential decisions “groove” out an advantage that the system finds it hard to escape from. Exiting lock-in is difficult and depends on the degree to which the advantages accrued by the inferior “equilibrium” are reversible or transferable to an alternative one. It is difficult when learning effects and specialized fixed costs are the source of reinforcement. Where coordination effects are the source of lock-in, often advantages are transferable. As long as each user has certainty that the others also prefer the alternative, each will decide independently to “switch”. Inertia must be overcome though because few individuals dare change in case others do not follow
  12. Path Dependence, Self-Reinforcement, and Human Learning
    1. There is a strong connection between increasing returns mechanisms and learning problems. Learning can be viewed as competition among beliefs or actions, with some reinforced and others weakened as fresh evidence and data are obtained. But as such, the learning process may then lock-in to actions that are not necessarily optimal nor predictable, by the influence of small events
    2. What makes this iterated-choice problem interesting is the tension between exploitation of knowledge gained and exploration of poorly understood actions. At the beginning many actions will be explored or tried out in an attempt to gain information on their consequences. But in the desire to gain payoff, the agent will begin to emphasize or exploit the “better” ones as they come to the fore. This reinforcement of “good” actions is both natural and economically realistic in this iterated-choice context; and any reasonable algorithm will be forced to take account of it. 
  13. Strategic Pricing in Markets and Increasing Returns
    1. Overall, we find that producers’ discount rates are crucial in determining whether the market structure is stable or unstable. High discount rates damp the effect of self-reinforcement and lead to a balanced market, while low discount rates enhance it and destabilize the market. Under high discount rates, firms that achieve a large market share quickly lose it again by pricing high to exploit their position for near-term profit. And so, in this case the market stabilizes. Under low discount rates, firms price aggressively as they struggle to lock in a future dominant position; and when the market is close to balanced shares, each drops its price heavily in the hope of reaping future monopoly rents. The result is a strong effort by each firm to “tilt” the market in its favor, and to hold it in an asymmetric position if successful. And so, in this case strategic pricing destabilizes the market
    2. The simple dynamics and stochastic model of market competition analyzed in this paper reveals striking properties. First, positive feedback or self-reinforcement to market share may result in bistable stationary distributions with higher probabilities assigned to asymmetric market shares. The stronger the positive feedback, the lower the probability of passing from the region of relative prevalence of one product to that of the other. Second, when producers can influence purchase probabilities by prices, in the presence of positive feedback, optimal pricing is highly state-dependent. The producers struggle for market shares by lowering prices, especially near pivot states with balanced shares. 

 What I got out of it

  1. Influential read discussing self-reinforcement, lock-in, increasing returns in knowledge-based economies/industries, path dependence, and more. Extremely applicable for business, investing, economics, learning, and more. A great mental model to have in your toolbox

The Systems Bible: The Beginner’s Guide to Systems Large and Small by John Gall

Summary

  1. The fundamental problem does not lie in any particular System but rather in Systems as Such. Salvation, if it is attainable at all, even partially, is to be sought in a deeper understanding of the ways of all Systems, not simply in a criticism of the errors of a particular system. Systems are seductive. They promise to do a hard job faster, better, and more easily than you could do it by yourself. But if you setup a System, you are likely to find your time and effort now being consumed in the care and feeding of the system itself. New problems are created by its very presence. Once set up, it won’t go away; it grows and encroaches. It begins to do strange and wonderful things and breaks down in ways you never thought possible. It kicks back, gets in the way and opposes its own proper function. Your own perspective becomes distorted by being in the system. You become anxious and push on it to make it work. Eventually you come to believe that the misbegotten product it so grudgingly delivers is what you really wanted all the time. At that time, encroachment is complete. You have become absorbed. You are now a systems-person.

Key Takeaways

  1. Systemism – mindless belief in systems, that they can be made to function to achieve desired goals. The strange behavior (antics) of complex systems
  2. Systems Never Do What We Really Want Them to Do
    1. Malfunction is the rule and flawless operation the exception. Cherish your system failures in order to best improve 
    2. The height and depth of practical wisdom lies in the ability to recognize and not to fight against the Laws of Systems. The most effective approach to coping is to learn the basic laws of systems behavior. Problems are not the problem; coping is the problem
    3. Systems don’t enjoy being fiddled with and will react to protect themselves and the unwary intervenor may well experience an unexpected shock 
    4. Failure to function as expected is to be expected. It is a perfectly general feature of systems not to do what we expected them to do. 
    5. “Anergy” is the unit of human effort required to bring the universe into line with human desires, needs, or pleasures. The total amount of anergy in the universe is constant. While new systems may reduce the problem it set out to, it also produces new problems. 
    6. Once a system is in place, it not only persists but grows and encroaches 
    7. Reality is more complex than it seems and complex systems always exhibit unexpected behavior. A system is not a machine. It’s behavior cannot be predicted even if you know it’s mechanism 
    8. Systems tend to oppose their own proper functions. There is always positive and negative feedback and oscillations in between. The pendulum swings 
    9. Systems tend to malfunction conspicuously just after their greatest triumph. The ghost of the old system continues to haunt the new
    10. People in systems do not do what the system says they are doing. In the same vein, a larger system does not do the same function as performed as the smaller system. The larger the system the less the variety in the product. The name is most emphatically not the thing
    11. To those within a system, the outside reality tends to pale and disappear. They are experiencing sensory deprivation (lack of contrasting experiences) and experience an altered mental state. A selective process occurs where the system attracts and keeps those people whose attributes are such as are attracted  them to life in that system: systems abstract systems people 
    12. The bigger the system, the narrower and more specialized the interface with individuals (SS number rather than dealing with a human)
    13. Systems delusions are the delusion systems that are almost universal in our modern world 
    14. Designers of systems tend to design ways for themselves to bypass the system. If a system can be exploited, it will and any system can be exploited 
    15. If a big system doesn’t work, it won’t work. Pushing systems doesn’t help and adding manpower to a late project typically doesn’t help. However, some complex systems do work and these should be left alone. Don’t change anything. A complex system that works is invariably found to have evolved from a simple system that worked. A complex system designed from scratch never works and can not be made to work. You have to start over, beginning with a working simple system. Few areas offer greater potential reward than understanding the transition from working simple system to working complex system 
    16. In complex systems, malfunction and even total non function may not be detectable for long periods, if ever. Large complex systems tend to be beyond human capacity to evaluate. But whatever the system has done before, you can be sure it will do again
    17. The system is its own best explanation – it is a law unto itself. They develop internal goals the instant they come into being and these goals come first. Systems don’t work for you or me. They work for their own goals and behaves as if it has a will to live
    18. Most large systems are operating in failure mode most of the time. So, it is important to understand how it fails, how it works when it’s components aren’t working well, how well does it work in failure mode. The failure modes can typically not be determined ahead of time and the crucial variables tend to be discovered by accident
    19. There will always be bugs and we can never be sure if they’re local or not. Cherish these bugs, study them for they significantly advance you towards the path of avoiding failure. Life isn’t a matter of just correcting occasional errors, bugs, or glitches. Error-correction is what we are doing every instant of our lives
    20. Form may follow function but don’t count on it. As systems grow in size and complexity, they tend to lose basic functions (supertankers can’t dock)
    21. Colossal systems cause colossal errors and these errors tend to escape notice. If it is grandiose enough, it may not even be comprehended as an error (50,000 Americans die each year in car accidents but it is not seen as a flaw of the transportation system, merely a fact of life.) Total Systems tend to runaway and go out of control
    22. In setting up a new system, tread softly. You may be disturbing another system that is actually working
    23. It is impossible not to communicate – but it isn’t always what you want. The meaning of a communication is the behavior that results
    24. Knowledge is useful in the service of an appropriate model of the universe, and not otherwise. Information decays and the most urgently needed information decays fastest. However, one system’s garbage is another system’s precious raw material. The information you have is not the information you want. The information you want is not the information you need. The information you need is not the information you can obtain. 
    25. In a closed system, information tends to decrease and hallucination tends to increase
  3. What Can Be Done
    1. Inevitability-of-Reality Fallacy – things have to be the way they are and not otherwise because that’s just the way they are. The person or system who has a problem and doesn’t realize it has two problems, the problem itself and the meta-problem of unawareness
    2. Problem avoidance is the strategy of avoiding head-on encounters with a stubborn problem that does not offer a good point d’appui, or toe hold. It is the most under-rated of all methods of dealing with problems. Little wonder, for its practitioners are not to be found struggling valiantly against staggering odds, nor are they to be seen fighting bloody but unbowed, nor are they observed undergoing glorious martyrdom. They are simply somewhere else, successfully doing something else. Like Lao Tzu himself, they have slipped quietly away into a happy life of satisfying obscurity. The opposite of passivity is initiative, or responsibility – not energetic futility. Choose your systems with care. Destiny is largely a set of unquestioned assumptions 
    3. Creative Tack – if something isn’t working, don’t keep doing it. Do something else instead – do almost anything else. Search for problems that can be neatly and elegantly solved with the resources (or systems) at hand. The formula for success is not commitment to the system but commitment to Systemantics 
    4. The very first principle of systems-design is a negative one: do without a new system if you can. Two corollaries: do it with an existing system if you can; do it with a small system if you can.
    5. Almost anything is easier to get into than out of. Taking it down is often more tedious than setting it up
    6. Systems run best when designed to run downhill. In essence, avoid uphill configurations, go with the flow. In human terms, this means working with human tendencies rather than against them. Loose systems last longer and function better. If the system is built too tight it will seize up, peter out, or fly apart. Looseness looks like simplicity of structure, looseness in everyday functioning; “inefficiency” in the efficiency-expert’s sense of the term; and a strong alignment with basic primate motivations 
      1. Slack in the system, redundancy, “inefficiency” doesn’t cost, it pays
    7. Bad design can rarely be overcome by more design, whether bad or good. In other words, plan to scrap the first system when it doesn’t work, you will anyway
    8. Calling it “feedback” doesn’t mean that it has actually fed back. It hasn’t fed back until the system changes course. The reality that is presented to the system must also make sense if the system is to make an appropriate response. The sensory input must be organized into a model of the universe that by its very shape suggests the appropriate response. Too much feedback can overwhelm the response channels, leading to paralysis and inaction. The point of decision will be delayed indefinitely, and no action will be taken. Togetherness is great, but don’t knock get-away-ness. Systems which don’t know how much feedback there will be or which sources of feedback are critical, will begin to fear feedback and regard it as hostile, and even dangerous to the system. The system which ignores feedback has already begun the process of terminal instability. This system will be shaken to pieces by repeated violent contact with the environment  it is trying to ignore. To try to force the environment to adjust to the system, rather than vice versa, is truly to get the cart before the horse
      1. What the pupil must learn, if he learns anything, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and identifying with those realities. – Joseph Tussman 
    9. Nature is only wise when feedbacks are rapid. Like nature, systems cannot be wise when feedbacks are unduly delayed. Feedback is likely to cause trouble if it is either too prompt or too slow. However, feedback is always a picture of the past. The future is no more predictable now than it was in the past, but you can at least take note of trends. The future is partly determined by what we do now and it’s at this point that genuine leadership becomes relevant. The leader sees what his system can become. He has that image in mind. It’s not just a matter of data, it’s a matter of the dream. A leader is one who understands that our systems are only bounded by what we can dream. Not just ourselves, but our systems also, are such stuff as dreams are made on. It behooves us to look to the quality of our dreams
    10. Catalytic managership is based on the premise that trying to make something happen is too ambitious and usually fails, resulting in a great deal of wasted effort and lowered morale. On the other hand, it is sometimes possible to remove obstacles in the way of something happening. A great deal may then occur with little effort on the part of the manager, who nevertheless (and rightly) gets a large part of the credit. Catalytic managership will only work if the system is so designed that something can actually happen – a condition that commonly is not met. Catalytic managership has been practiced by leaders of genius throughout recorded history. Gandhi is reported to have said, “There go my people. I must find out where they are going, so I can lead them.” Choosing the correct system is crucial for success in catalytic managership. Our task, correctly understood, is to find out which tasks our system performs well and use it for those. Utilize the principle of utilization
    11. The system itself does not solve problems. The system represents someone’s solution to a problem. The problem is a problem precisely because it is incorrectly conceptualized in the first place, and a large system for studying and attacking the problem merely locks in the erroneous conceptualization into the minds of everyone concerned. What is required is not a large system, but a different approach. Solutions usually come from people who see in the problem only an interesting puzzle, and whose qualifications would never satisfy a select committee. Great advances do not come out of systems designed to produce great advances. Major advances take place by fits and starts
      1. Most innovations and advancements come from outside the field
    12. It is generally easier to aim at changing one or a few things at a time and then work out the unexpected effects, than to go to the opposite extreme, attempting to correct everything in one grand design is appropriately designated as grandiosity. In dealing with large systems, the striving for perfection is a serious imperfection. Striving for perfection produces a kind of tunnel-vision resembling a hypnotic state. Absorbed in the pursuit of perfecting the system at hand, the striver has no energy or attention left over for considering others, possibly better, ways of doing the whole thing
    13. Nipping disasters in the bud, limiting their effects, or, better yet, preventing them, is the mark of a truly competent manager. Imagination in disaster is required – the ability to visualize the many routes of potential failure and to plug them in advance, without being paralyzed by the multiple scenarios of disaster thus conjured up. In order to succeed, it is necessary to know how to avoid the most likely ways to fail. Success requires avoiding many separate possible causes of failure. 
    14. In order to be effective, an intervention must introduce a change at the correct logical level. If your problem seems unsolvable, consider that you may have a meta problem
    15. Control is exercised by the element with the greatest variety of behavioral responses – always act so as to increase your options. However, we can never know all the potential behaviors of the system
    16. The observer effect – the system is altered by the probe used to test it. However, there can be no system without its observer and no observation without its effects
    17. Look for the self-referential point – that’s where the problem is likely to be (nuclear armament leading to mutually assured destruction)
    18. Be weary of the positive feedback trap. If things seem to be getting worse even faster than usual, consider that the remedy may be at fault. Escalating the wrong solution does not improve the outcome. The author proposes a new word, “Escalusion” or “delusion-squared or D2“, to represent escalated delusion 
    19. If things are acting very strangely, consider that you may be in a feedback situation. Alternatively, when problems don’t yield to commonsense solutions, look for the “thermostat” (the trigger creating the feedback)
    20. The remedy must strike deeply at the roots of the system itself to produce any significant effect
    21. Reframing is an intellectual tool which offers hope of providing some degree of active mastery in systems. A successful reframing of the problem has the power to invalidate such intractable labels as “crime”, “criminal”, or “oppressor” and render them as obsolete and irrelevant as “ether” in modern physics. When reframing is complete, the problem is not “solved” – it doesn’t even exist anymore. There is no longer any problem to discuss, let alone a solution. If you can’t change the system, change the frame – it comes to the same thing. The proposed reframing must be genuinely beneficial to all parties or it will produce a destructive kickback. A purported reframing which is in reality an attempt to exploit will inevitably be recognized as such sooner or later. The system will go into dense mode and all future attempts to communicate will be viewed as attempts to exploit, even when not so motivated
    22. Everything correlates – any given element of one system is simultaneously an element in an infinity of other systems. The fact of linkage provides a unique, subtle, and powerful approach to solving otherwise intractable problems. As a component of System a, element x is perhaps inaccessible. But as a component of System B, C, or D…it can perhaps be affected in the desired direction by intervening in System B, C, D…
    23. In order to remain unchanged, the system must change. Specifically, the changes that must occur are changes in the patterns of changing (or strategies) previously employed to prevent drastic internal change. The capacity to change in such a way as to remain stable when the ground rules change is a higher-order level of stability, which fully deserves its designation as Ultra-stability 

What I got out of it

  1. A fun and sarcastic read about systems, their general behavior, how difficult they are to change, and much more.

The Seventh Sense: Power, Fortune and Survival in the Age of Networks by Joshua Cooper Ramo

Summary
  1. This books dives into the power of networks and how the interconnectedness of everything changes everything. The seventh sense lies in harnessing and understanding the power of networks. The seventh sense is the ability to look at any object and see how it is changed by connection. Connection changes the nature of an object
Key Takeaways
  1. The sixth sense was Nietzsche’s idea of people having to get a sense for the rhythm of history in order to deal with the then nascent industrial revolution. The seventh sense allows us to change our habits in order to deal with our new networked world where we are constantly connected. Any system which is not designed around or to work with constant connection will have to be re-thought and re-designed or else they will crack in today’s new paradigm
  2. In a world where the map is constantly changing due to the power networks have to effect change, one has to rely on their instincts or seventh sense in order to survive and thrive. Mastery of the seventh sense will give people an ability to instantly feel and react to the changing power of networks
  3. Understanding always takes a long time, contemplation, stillness and deep conversations with others in order to penetrate and embody the truth.
  4. Networks grow as they gain nodes which connect across areas, mediums and geography. Networks grow powerful as they expand and depends on the type and relationship and speed of the nodes. Helpful metaphor for world of punctuated equilibrium is when molecules of water molecules link up and suddenly turns to ice when the temperature drops low enough. A powerful network can develop and disrupt that quickly
  5. Protocols allow you to design the organization and processes of a system and therefore the design of the protocol gives you almost total control of the system. Awesome example where he says that learning Chinese fluently is not what will be important in the future but creating the translation protocol will be because this controls the system and makes one specific language less important
  6. The physical world is shaped and influenced by the design of the digital world
  7. America is different than previous superpowers in the sense that she is willing to change and disrupt what makes her so dominant today
  8. So much of what is brilliant and revolutionary at first is seen as crazy, comical and/or stupid
  9. Greatest threat to America dominance is not China, Russia, or anyone else but the evolution of networks and the power they bring
  10. The victors of the future will be those who master networks
  11. What marks successful network thinkers is that they see structures with in the network and how power and influence might move through them
  12. That work create centralization and distribution. Network notes are distributed all over the world but power accrued and centralizes along the most powerful company. Distribution and concentration are the essence of power now. As more devices and those connect to the network the more powerful the core have to become
  13. The “platform used to matter but now it is Proto call  indicate how powerful pipeline in the design a system have become
  14. Leaders are struggling today because of the tension between centralization and distribution. This may be in paradoxical but much light in and day they coexist and need to other in order to exist exist
  15. System and networks are complex adaptive systems where unexpected behaviors and pattern emerge.
  16. Once an object connect to a system turns from complicated to complex. Industrial revolution made a simple complicated and network revolution made the complicated complex
  17. Robust principal – conservative in what you do and liberal in what you accept
  18. Conductivity brings with it multiple downside such as owner ability to have to wear your machine can be taken over and commanded what to do. All of the worlds most relied upon system and from the political to financials are vulnerable to sources that are hard to stop and even harder to see. Most of the biggest decision that will affect our lives will from now on be done and implemented in secret
  19. New cast of it being for who truly understands how to make computers that work at systems say and how they should be designed. Betty ourselves cause but I’ll have the MC of the seven cents
  20. Seventh son does not want a level of acidity towards these new network but rather an understanding of its nature in order to further what we really care about
  21. At work are fundamentally interwoven with time and often try heated up or manipulated in other ways
  22. How we perceive is greatly influenced by in which we experience for example climbing a hill on foot versus in a car are almost totally different experience
  23. In the end that works for Bill to get around time by there nearly instantaneous function. As it up space becomes compress as you can travel the same distance and last time. Bass is a competitive advantage to be faster is the sizes for the future lies those who are the fastest
  24. Old world in terms of distance where as the new cast thing in terms of how fast you can traverses. Geography versus whole policy. Today how far away something is truly determined by the speed and quality of the connection and not by distance
  25. The true power of network lies in trust ties and not in cables or fiber
  26. Influence will accrue to those who are better able to compress time as there seems to be on unlimited desire for speed
  27. Today there is no more powerful position that to a network which is desirable for others. Figuring out where our who is our will help you figure out what steps to take and whether to build your own pasta or do something new
  28. Networks allow for a relatively new phenomenon which turns diminishing returns into increasing returns. Network effects are the strongest type of increasing return and changes how we think about and operate businesses. These businesses are power law distributed as they breed commanding winners – winner take all. Networks optimize themselves to be faster and more efficient the bigger they get and the more people who use them. Winner takes all because we all benefit
  29. A network and connected world wants the fastest solution to everything from social media to videos to online payment
  30. When the Chinese want to do something they asked what is the nature of the age as the context matters as much as the solution but I Americans simply begin with a goal. The author posit that today’s nature is one of collapse of old industry and giant and construction of new one
  31. That works give us a glimpse into where power is and will be in the strategies one should employ based on this
  32. The fundamental question of power in today’s age is whether you or your country or company are the gatekeeper or gatekept. The nature of today is that everything is or will be connected and as we’ve learned, this changes the nature of the object connected. This process of linking everything is unstoppable
  33. An increasingly powerful tool will be the ability to cut and keep people out of these important gatelands
  34. Disappearing AI if the concept that AI is getting so powerful. So much data entry so many connections that how it got to a dancer is becoming increasingly impossible for humans to figure out this has in Norman and location for our future and is exciting and scary
Summary
  1. Fascinating book on the power of networks and how the ability to see how the nature of things change once they are connected is where future power, innovation, influence and wealth lies.

Scale: The Universal Laws of Growth, Innovation, Sustainability and the Pace of Life in Organisms, Cities, Economies and Companies by Geoffrey West

Summary
  1. There are some simple, universal laws which link all complex systems and this book explores these various scaling laws and systems to provide a predictive framework
Key Takeaways
  1. We live in an exponentially expanding socio-economic urbanized worked. A key topic of this book is the key role that cities and urbanization play in the future of the world. Cities are the crucible of civilization and humans depend on their continuity for innovation, commerce and as magnets for creativity and growth. However, they also attract crime, resources and cause much pollution and health problems. The author will explore if there can be a science of cities and companies to predict their longevity and provide a framework and strategy for achieving long term sustainability. Mega cities will take on scales never before seen as the trend is for increasing urbanization with up to 75% of the world population living in cities by 2050
  2. The open ended exponential growth of cities is in marked contrast to what is seen in biology and in corporations. To what extent are cities extensions of biology and if they are in fact a type of super organism why do most of them never die? The author will explore whether a serious mechanistic theory can explain our own mortality and that of companies and why cities seem immune
    1. Too short of a time frame to tell? 5-10,000 is a lot but on geological scales it is not at all
  3. Energy, metabolism and entropy. Will refer to all types of biological energy transformation as metabolism which are used towards physical work as well as for refueling, growth, reproduction and maintenance. The vast majority of human energy has been put towards forming collectives such as cities and companies as well as to the discovery and implementation of ideas. However, without a steady supply of energy none of this growth or innovation is possible. Energy is primary to everything we do and everything that happens around us and is often underapprecaited by scientists and researchers in most fields. As there is no free lunch regarding energy, every action and energy usage has a consequence in the form of useless energy in the form of heat or disorder, otherwise known as entropy. Entropy, the second law of thermodynamics, always increases and hangs over everyone and everything. Growth stops because of the mismatch between energy demand and supply. However, things which grow super linearly, like cities, get more energy supplied than is demanded as they grow so as they get bigger they also grow faster. For companies, sales or revenues can be thought of as growth and expenses and maintenance. The fewer expenses the more energy is available for growth. Younger company’s profits scale faster than expenses but on average these scale linearly as companies grow (similar to the progress of most organisms). Companies tend to grow, scale, mature and die in similar fashions regardless of industry which indicates universal dynamics may be at play
  4. Scaling and non linear behavior. Scaling is how things change with size and the fundamental rules and behaviors they obey. This helps establish a framework to connect how various systems, organisms and more behave as they change size. Scaling helps understand tipping points, chaotic systems and phase transitions. Scaling will play an increasingly larger role as man made systems continue to increase in size and complexity and underlying principles are typically not well understood as they tend to becomplex adaptive systems. Linear extrapolation to growth and scaling is dangerous as it is often implicit as it is often wrong. Metabolic needs, parents, innovation and much more scales non-linearly or enjoys increasing returns to scale – LA’s GDP per capita is greater than expected when compared to Oklahoma City’s GDP per capita.  Economies of scale – as a city, organism, etc gets larger it in fact gets more efficient. An organism twice as large only requires 75% more energy rather than 100% as linear thinking would suggest. This 3/4 metabolic scaling law applies across nearly every taxonomy. The number 4 therefore plays a nearly universal law in biological life. Elephants, though having 10,000 more cells to support than rats, only need 1,000 more energy. This amazing efficiency allows for longer longevity
  5. Emergence, self organization and resilience. Complex systems are made up of a multitude of small components which lead to unexpected results where the whole is greater than the sum of its parts, emergence. Humans are more than the totality of their cells. There is no central control by these individual components but amazing things can emerge through this self-organization. These complex adaptive systems are able to adapt and evolve to changing external conditions leading to a resilient system. However, these systems are also influenced by both positive and negative feedback loops which can quickly alter the system
  6. You are your networks. Growth can be considered a special case of scaling. Networks the determine the rates at which energy and resources are delivered to cells, they set the pace of all physiological processes. Pace of life slows as the network expands which is why bigger animals live longer, take longer to mature, have slower heart rates and are more metabolically efficient
  7. Cities tend to scale at a 1.15 scaling law as it doubles. So, a city twice as bi has 15% more innovation, wages, crime, disease, etc. than a linear doubling would suggest. This appears across countries and across time showing there may be a universal, generic scaling law we can apply to cities. Pace of life in bugger cities scaled as well and people’s pace of walking even does too. This scaling also indicates that pace of innovation and wealth creation must keep speeding up as well. This must break at some point however so growth may hold the seeds of its own destruction – dialectical materialism
  8. Companies are much more like organisms than cities in that they scale sub linearly (0.85), they get more efficient and slower as they get bigger, rather than faster like cities (1.15 scaling). Companies, like organisms, also stop growing at some point, slow down and eventually decay as changing and growing becomes more difficult the larger one is, they become more unidimensional whereas cities get multidimensional as they grow
  9. Understanding that area and volume scale at different proportions is helpful when thinking about scaling up houses, organisms, etc. If the size of an elephant doubles, the weight of the elephant grows in proportion to the volume (which cubes if the animal is doubled) whereas the strength would only double. That is why ants the size of elephants or Godzilla could exist if they were made of the same materials. There are limits to size and growth as the relative strength decreases as size increases. There is a nonlinear growth scale between strength and weight (2:3)
  10. A key assumption of scaling is that the physical and chemical compositions remain the same. However, innovation often allows for growth at a larger scale due to stronger materials, like steel instead of wood, or improved design such as the use of arches or vaults
  11. Brunell – one of the greatest engineers of the 19th century and a true polymath. He innovated with tunnels, railways, shipbuilding (larger ships require proportionately less fuel per ton than smaller ships, economies of scale), bridges and more
  12. The Navier-Stokes equation describes turbulence and was very influential in shipbuilding and was one of the first studies of complexity
  13. Metabolic rate is the fundamental rate for all of biology, setting the pace of everything life does. Metabolism may be the most pervasive and consistent law in the universe, applying to some orders of magnitude of mass, from bacteria to blue whales
  14. The Magic #4 – a huge range of scaling laws across life (metabolism, heart rate, size of aorta, tree trunk) scale in simple quarters suggesting that evolution has been constrained by other general principles beyond natural selection. This may be a clue to universal biological principles which could help us better predict and analyze life. Networks may be the constraint which leads to quarter scaling as the physical makeup of the network may be different but they would be constrained by the same mathematical and physical principles. Power law scaling is the mathematical expression of self similarity and fractality. We are thus all living examples of self similarity and fractals. My understanding is that this quarter scaling is indicative of our 4D universe (the fourth being fractality or self-similarity which takes advantage of volume filling traits) and contrary to the 11D string theorists currently believe we live in. Few human inventions take advantage of the optimization fractals confer but organic processes like organisms and cities do.
  15. Humans require approximately 90w of energy to live
  16. What is irrelevant at one scale becomes dominant at another. What is important at every scale is to find the variables which dominate the behavior of the system. See Game Play video with Alan Watts narration which Kevin Rose pointed out which discusses perspective and scale
  17. Optimization principles lie at the very heart of all of the fundamental laws of nature as all aim to minimize the amount of action or energy required. Thus, though the networks are physically different, animals and plants scale similarly to minimize the amount of energy needed for energy to reach the terminal destination (capillaries). Can say the blood changes from AC (pulsatile) to DC (steady stream) as it moves to the capillaries. This saves energy and ensures the blood is moving slow enough for oxygen to dissipate
  18. Impedence matching is when there is clear and accurate communication, saving energy
  19. Although organisms take advantage of optimization from self similarity, the physical bounds of the networks limits the size, age, scope, etc of physical organisms. Weight would crush the animal as volume scales faster than area, oxygen would not be able to diffuse into cells once animal reaches a certain size. Organisms also stop growing due to the different ways energy need and metabolism scale. The rate at which energy is needed for maintenance scales faster than the rate at which metabolic energy can be supplied, forcing the amount of energy for growth to systematically decrease, resulting in the cessation of growth at some point. So, the less energy needed for maintenance (fixed costs), the more is available for growth.
  20. Life is so sensitive to temperature because chemical reactions such as metabolic rate scale exponentially in respect to temperature. For example, a 2°C rise in temperature would lead to a 20-30% rise in pace of life (and hence mortality)
  21. The author believes that caloric restriction can increase lifespan as anything which slows down the metabolism will lead to less damaged cells in a similar period of time, thereby increasing life span. However, we are complex adaptive systems and simply altering one variable will have unseen consequences
  22. Amazingly, the universe is expanding exponentially and on earth, we are expanding exponentially socioeconomically
  23. Traditionally, population growth has correlated closely with increases in financial indices
  24. The city is our ingenious invention to increase collaboration and social cohesion and interaction. Two key components of innovation and wealth creation. Their downside include crime, pollution and huge consumption or resources. Cities are an emergent self-organizing phenomenon helping increase productivity, social collaboration and innovation no matter where in the world the city is
  25. Dunbar’s Number is a nested group in that your most intimate friends number around 5, second tier is about 15, then 50 and 150 and so on in multiples of three. This can be used to form optimally sized groups, councils, etc. The author speculates that cities are physical manifestations of our brain as their function and basic layout are universal and symbolic of how humans act and interact which is encoded in our neural networks
  26. Zipf’s Law is used to describe the size and frequency distribution of a huge array of areas. It says that the second largest or more st frequent will be about half as large or frequent as the first, the third about 1/3, fourth about 1/4, etc. Another way of stating Pareto’s 80/20 Law
  27. People, regardless of city or occupation, spend about 1 hour per day commuting. All technology has done has allowed people to live farther away as they can now travel faster
  28. Social interactions underlie the universal scaling of urban characteristics
  29. Cities which are rich, safe, innovative and generally overperforming, tend to keep doing so and similar for cities which underperform
  30. Different types of businesses and professions also scale proportionately as cities grow, some super and some sub-linearly
  31. To sustain open ended growth in light of resource limitation requires continuous cycles of paradigm shifting innovations which over time must occur at shorter and shorter intervals
What I got out of it it
  1. A lot of excellent examples of scale and new examples of how it permeates our everyday lives

Resilience: Why Things Bounce Back by Andrew Zolli and Ann Marie Healy

Summary
  1. A resilient structure or system is one which can bounce back to its original form after some stimulus. This book describes how to make more resilient systems and businesses in order to better deal with our increasingly volatile world. Resilience is a common characteristic of dynamic systems which persist over time which is why most organisms embody characteristics of resilience to varying degrees
Key Takeaways
  1. Volatility is increasing and here to stay. The details are different but they share certain common characteristics and are always the result of many complex interactions. Can’t control this type of disruption but we can build better systems by making them more resilient, having the ability to rebound and adapt. Continuity and recovery in the face of change
  2. To improve your resilience is to increase the effort it takes for a stimulus to force you off your baseline while also increasing your ability to adapt and bounce back once it happens. Preserving adaptive capacity. Truly resilient systems change dynamically to achieve its purpose as well as the scale at which it operates. Diversifying the resources in which the system operates makes it more resilient to change as it allows for modularity. Diverse at their edges but simple at their core – modularity, simplicity and interoperability vital
  3. The ways to adapt and the stimuli which force change are both nearly infinite
  4. Resilience is not robustness – robustness typically entails hardening the assets of a business. Redundancy is keeping a backup but is not resiliency either. Resilience is also not the recovery of a system to its initial state.
    1. Think of a tree which is strong but has no give. It can withstand a lot until it snaps. This is robust but not resilient
    2. Now, imagine bamboo. It is thin, flexible and can return to its original state given pretty much any wind. This is resilience
  5. Failures are often helpful to release resources and reset and trying to stop these small failures make systems more fragile and will eventually lead to a massive failure. A seemingly perfect system is often the most fragile and the one which fails often but in small ways may be the most resilient
  6. Psychic resilience comes from habits of mind and is able to be learned and improved upon over time.
    1. Optimism and confidence are some of the best traits to deal with depression and to become more resilient
    2. People exhibiting ego-resilience and ego-control are best at delaying gratification, being resilient and overcoming obstacles
    3. Hardiness – believe can find a meaningful purpose in life, one can influence one’s surrounding and events, both positive and negative events will have lessons one can learn from. People of faith tend to be more resilient partially due to their “hardiness”
    4. Mindfulness meditation is a great tool to improve our resilience as it helps us create a space between our events, thoughts, emotions – an external “witness observer”
  7. Strong social resilience is found in societies with a lot of trust, a translational leader at it’s core promoting adaptive governance
  8. Holism – bolstering the resilience of only one part of the system sometimes adds fragility to another area. To improve resilience you often need to work in more than one mode and one scale and one silo at a time. Take the granular and the global into account simultaneously
  9. 4 stages of adaptive growth – Fast growth (resources coming together), conservation (efficiency of resources used but less resilience), release (fall of system), reorganization (process starting over)
  10. Robust yet fragile – systems which are resilient to anticipated danger or change but not to the unanticipated. It is often thousands of small decisions which aggregate rather than one massive event which brings down a system
  11. Must be able to measure health of a system as a whole and not just its pieces to know if fragility is sneaking in
  12. In risk management, risks tend to be modeled as additive but in reality they are multiplicative. One failure makes future failures multiples more likely
  13. Signs of a system flip – becomes unstable near its threshold, too much synchrony or agents acting in union (over correlation and people must make similar choices to survive)
  14. The timing of force, change and its effects is often more important than its scope
  15. Real time data, better monitoring and isolation upon any sign of cascading failure are three important design features
  16. Protocols are the lingua Franca of systems
  17. There are universal scaling laws for biological organisms so that the larger the organism the slower the metabolism and the longer the average life span. The power of clustering comes from a similar phenomenon but in the case of cities, the larger they get, the “faster” they become and the average income increases but certain quality of life markers decrease – there are increasing returns to scale, super linear scaling. However, as this part of life increases, the pace of innovation needs to speed up too or else the city may spiral downwards. The increasing diversity helps with this
  18. Respect is the cheapest concession you can give in relationships and negotiation. It is also a positive sum trait where your dispersal of respect only increases the total
  19. Improving resilience is not about removing every possible disturbance. In fact, facing challenges which test you or your organization are vital. They show where improvements need to be made and can clear the path for creative destruction
What I got out of it
  1. A thorough overview of what resilience entails and many examples of both fragile and antifragile people, ecosystems, institutions, organizations and more