Beating Alpha

iterating towards truth

Mementos

fragile spaghetti world

In software development, there is a fabulous term called “spaghetti code”. This term usually reflects the quality with which the software architecture of the application has been designed: a messy, interconnected, duplicated set of methods and classes without any guiding logic that is very painful to debug, costly to extend, and prone to significant error if fuckups occur. The problem is that it was never the intention of software developers to create spaghetti code in the first place. Most of the developers don’t come to work and say: let me write some shitty spaghetti code today. But over time, iteration by iteration it is easier to write little tweaks and hacks that save you time in the short run because a) it’s easier, b)short-term efficiency is all that matters. Now!  Why care about the long run if money talks now, right?

Observing 2020 and 2021 very reminds me of this spaghetti code analogy with very interesting bottle-necks somewhere in the middle of their complexity. We have created systems so complicated and so efficient yet super fragile. From energy supply, supply chains to financial markets. Take for example the Suez canal story. One ship, one fuckup, and 10% of global trade hangs in balance. Texas winter storm and power plant that supports millions of households fail, leading to shortages of water, food, and heat. One hedge fund (Archegos), that needs to unwind leveraged portfolio and billions of dollars lost in matters of hours. We have created an interconnected complex spaghetti world with “low probability, high impact bottlenecks” where one error can have a fatal impact on the whole ecosystem. The black swans are less and less black. We have sacrificed efficiency at the cost of redundancy and resilience. As Nassim Taleb put it in Antifragile: “what Mother Nature does is rigorous until proven otherwise; what humans and science do is flawed until proven otherwise”.

I think the flaws of our scientific efficiency are obvious, only time will tell if we can learn from our flaws and become a little bit more resilient, a little bit more redundant in the years ahead. If we have the “long-run” (and not only temporary short-term gain) in our mind, we might create less of a fragile spaghetti world.

Thanks for reading.

JK

Leave a Reply