My blog focuses on ‘risk’ both in how different executives approach it (‘Leadership and Management’) and how people in general respond to the inevitable downsides in life (‘Turning Adversity to Advantage’). One of my favourite books on the topic of risk is Nassim Nicholas Taleb’s ‘Fooled by Randomness’. He covers much ground, but focuses especially on how human beings ‘perceive’ and ‘behave around’ risk. The subjective side of risk versus the perspective of objective assessment (ie. risk is just a maths calculation). He looks at a lot of counter-intuitive principles in probability that are often poorly understood and applied. ‘Fooled by Randomness’ was a seminal influence in my thinking about risk and how it is approached by executives. It has the distinction of being the only book that I can recall having read 3 times.
If Jim Collins (‘Good to Great’) is the cheer of support for the importance of ‘Management,’ then ‘Fooled by Randomness’ is a boisterous pep rally. Not only does Taleb make an near of obsession with understanding, heeding and even profiting from the downside direction of risk, but he also launches into a scathing rebuke of just about anyone who has ever pursued and profited from upside. If you ever wanted a paean to the ‘Manager’ persona, ‘Fooled by Randomness’ delivers passionately.
I stand by my perspective that the optimal executive balances both upside ambition with downside respect. Such a balance reflects the story of Carneades which Taleb himself cites to highlight the ‘uncertainty of knowledge.’ Carneades was the Greek philosopher who presented to the Academy in an eloquent and spellbinding oration arguing one side of an issue. He then returned the following day to argue just as forcefully and effectively the completely contrary side of the issue. To me, this is a great test for a Leader-Manager executive, being able to thoroughly understand top to bottom the issues and implications of major issues both upsides and downsides.
As a sort of colourful parable vehicle, Taleb creates two semi-fictional characters who personify the ‘Leader’ and ‘Manager’ approach to financial trading (the world Taleb works in). Nero – “as conservative a trader as one can be”, and John – “the high yield Master of the Universe type trader.” A turtle and hare allegory where Nero slowly and steadily amasses dependable gains though missing out on big spikes that others gain from because he participates less aggressively. In the end, while John enjoys many glorious years of large gains, he ultimately ‘blows up’ when one of his calls goes the wrong way. Unfortunately, since John’s style is one to ‘bet big,’ when the miss does come it hits hard and irrecoverably. Anyone who thinks this is just a make believe parable need only peruse the history of high finance trading from Barings to Enron to see how prevalent and profound this tale is. The two caricatures are rich portrays of the two personas of Leader and Manager, bringing into relief the plusses and minuses of each style/perspective, though the latter is treated much more sympathetically overall
Taleb presents so much rich material that relates to the risk perspective view of Leadership-Management, I will be doing a number of blog entries this week on subjects taken from the book.