Guiding Quote

“Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.” Einstein

Wednesday, May 9, 2012

O-O-D-A Loop: Step 2 Orientate- Clarity vs Truth

   When you are analyzing a situation be aware of the hidden conflict between clarity and truth. It’s hidden because we can confuse a clear picture with a true picture. Well that might work in photography but in human relationships clarity involves simplification and that involves removing some of the complexity in order to explain what is happening. The problem is that sometimes we take away elements that are essential to the truth. Without them our clear picture is a false one.

   This conflict creates practical problems with models, be they business, scientific, economic, or political. The more you simplify in order to understand, or to better explain, the less realistic they become. 

   For example take the various economic models or theories that failed in the recent financial crisis. All of them had been simplified by removing from consideration the very factors that caused the meltdown. No where in those models was there any mention of what will happen if no one will buy the stock that people are desperately trying to sell: No matter what the price was! They all had the assumption that for every seller there would at some price be a buyer. Liquidity was assumed, it was a given. But in reality there have been many instances in the past 20 years were, because of the flood of sellers, there were not enough buyers. But the theory wouldn’t work without the liquidity assumption so the clarity of the model was achieved by removing inconvenient factors. They opted for clarity instead of truth.

   The problem was that people who came to rely on the model did so ignorant of the unreality of its assumptions. No one really knows how close the economic system came to collapse after the Lehman Brothers collapse, but those discarded elements of reality would have been one of its principal causes had it occurred.

   Einstein said, “Simplify but do not make simple”: A key motto as you analyze and synthesize. 

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