Note: Large parts of the book were inspired by [the thinking behind] this post and normal accident theory. Most people organize themselves in a lifestyle which is very prone to accidents. I do not. Bad things practically never happen to me. Conversely, good things happen rather often. This is because in my lifestyle I am able to capitalize on opportunities whereas a specialized salary man is not. In the same vein, I am not locked into choices in the way most people allow themselves to be; thus I can never be “check mated in 7 moves”—there are no cascading attacks possible. This kind of thinking/design comprises the foundation of chapters 3, 4, and 5.

Now onto the post …

In retrospect it is amazing how subprime loans could go so wrong? Who in their right mind could believe that real estate always goes up? For that matter, what about the dot.com craze and the new era? What makes people appear so stupid in retrospect?

Here’s why.

Accidents do not happen by chance (by “accident”). They are constructed, slowly, over time. Little by little tension is added to the system until some previously unconsidered part fails catastrophically and brings the whole thing down.

Consider a team of ice climbers who rope together and are supported by crampons and ice axes. The safety rule is always to have several points of contact (someone’s ice axe or someone’s crampons) to the ice. If anyone slips, the idea is for everybody else to self-arrest and thus halt the falling guy.

This system works brilliantly and should appear pretty safe, no?

Except if the top guy falls.

Suppose he is 15 feet above number 2 and slips. He will then fall 30 feet and convert the potential energy he has slowly built up into a tremendous amount of kinetic energy in less than a second. After 30 feet, he will only be supported by guy number two’s contact points, and he will be traveling at a high speed. The energy he slowly built up by climbing will be enough to snap bones when released all at once. Alternatively, it will rip number two right off the wall. And so it goes.

For the subprime debacle, the top guy was the rising real estate market.

Why did people not see it? The reason is that humans tend to be presented with too much information to objectively process it all. Therefore humans build a simpler conceptual model and understands that model instead. Once that model is built everything gets processed through this model and everything else gets ignored – even if it’s perfectly obvious in retrospect.

Watch the movie on this earlier post.

If you correctly counted the number of passes, you probably did not see the bear. Did you see the bear? If you saw the bear you probably did not count the passes.

In the same sense, those that follow rules and procedures, while potentially well aware of known problems are unaware of unknown problems (see here for more details). They do not keep an open mind and thus are not open to the possibility that something unknown may be sneaking up on them as they load the system with tension.

Have you invested in the same thing as everybody else lately?

You have, eh? What kind of accident have you just helped create then?

The human brain is continuously constructing an expected world to deal with the information overload. If something unexpected appears, the brain will often not see it even though it is right there. Like the bear above.

Another way of loading the system with tension is to have the people that are nominally in charge (truly, the system is in charge of itself) all “educated” in the same way. For instance, many of our leaders come out of “top universities”. While this generally means that they are very smart, it also means that they think in the same way which can be a great hazard. If you ever wondered why markets can crash so spectacularly it is because although the impending crash is known, the methods for dealing with it, as taught, were identically the same. People plan to leave the burning theater in the same way through the same door. Well, it was in the rules, right?

And the people in the houses
All go to the university,
And they all get put in boxes,
Little boxes, all the same.
And there’s doctors and there’s lawyers
And business executives,
And they’re all made out of ticky-tacky
And they all look just the same.

Can this be avoided? No!

Systems eventually develop entropy. Links that were severed for increased control (all engineering is essentially about reducing the degrees of freedom) are rebuilt in unpredictable ways. Monocultural farming is one example. Pesticide A kills pest A. This kills predator B, which then no longer kills pest C which goes out of control. Losing the crop to pest C was anunintended and thus unavoidable consequence under the constructed model.

The only way to avoid this is to pay less attention to rules and pay more attention to what is going on around you.

Originally posted 2008-05-28 07:32:17.