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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