Tuesday, July 22, 2008

Review: Simplexity

Jeffrey Kluger: Simplexity: Why Simple Things Become Complex (and How Complex Things Can Be Made Simple)

What, or who, is more effective at guessing the needs of a particular book-buyer? Amazon with its buildings of servers and aggregation of data based on demographics and past purchasing patterns? Or a small book, traditional book store with a knowledgeable trained at picking up the little cues that allow them to anticipate a customers needs? And which is more complex; or simple? Neither or both? How we can try to determine the answers to these questions and many others stretching from topics as diverse as how humans react in crisis to why bad sports teams beat better ones is the task Jeffrey Kluger sets out to explain in Simplexity.

Throughout his search, he returns to the researchers of the Sante Fe Institute, quite literally a think tank, which was founded by Nobel Prize (physics) winner Murray Gell-Mann. But the "complexity scientists" and scholars at SFI are engaged in all sorts of thought, including various experiments and studies. All to try to better understand why things work the way they do.
Complexity scientists like to talk about the ideas of pure chaos and pure robustness--and both are exceedingly simple things. An empty room pumped full of air molecules may not be a particularly interesting place, but it is an extraordinary active one, with the molecules swirling in all directions at once, dispersing chaotically to every possible crack and corner. On the other hand, a lump of carbon chilled to what scientists call absolute zero--or the point at which molecular motion is the slowest it can possibly be--is neither interesting nor active. The carbon is exceedingly static, or robust, as complexity researchers call it; the room is exceedingly chaotic. What neither of them is, however, is complex, offering only spinning disorder at one end and flash frozen order at the other.

Where you'd fine real complexity would be somewhere between these two states, the point at which the molecules begin to climb from disorder, sorting themselves into something interesting and organized...but catching themselves before they descend down the other side of the complexity hill, sliding into something lumpish and fixed. (p.27-9)
This is the so-called "Complexity Arc" and Kluger refers to it again and again as helpful tool in helping to analyze various topics. Using this tool, the stock market appears relatively simple; it usually finds itself in chaos or remarkably stable, very rarely in between. But the models are deceiving, and markets are affected by Adam Smith's "invisible hand" guided by "invisible brains," as Kluger puts it.
Capitalism functions reasonably well and communism flopped so badly because one system includes human needs, motivations, and occasional wisdom in its equations and the other stripped them out. Many complexity theorists studying stock trades argue that collective human brainpower is an underestimated thing, and the more minds you put to work in a market, the better you're all likely to do.
Here, Kluger turns to Brown University's Brook Harrington, who gives the jellybeans-in-a-jar guessing game as an example and boils it down: "It's the old story of the wisdom of the crowds." Using this as a guide, Harrington has shown that, time after time, investment clubs are more successful than individuals in earning money off of stock investments.

Kluger also explains that investors can also act in a moral way. If they don't like what a company has done--an oil spill, doing business with dictators, Enron--they may not favor them as much as earnings or potential would otherwise indicate. Traders are like most people and have an inherent desire to take part in a "fair deal." Kluger's illustration of this principle is eye-opening: if given the opportunity to get a share of $100, most people will reject anything too far away from a 50/50 split. For instance, they'd reject $20 if that meant the other person would get $80. Better nothing than letting someone else get more.

Ahh. Human nature.

It is the variable that most vexes complexity scientists and one they are vigorously seeking to study and quantify and qualify. A hopeless quest? Perhaps, but the little bits of data learned along the way have helped engineers and planners and others design better products, make safer buildings and, yes, decide if baseball or football are the more complex sport. You'll have to read the book to find out.

Some of the other examples Kluger provides are wondrous, such as how a simple fungus in Indonesia helped prop-up a dictator. Others are frustrating, as he explains that it's difficult to get people--and the groups they form--to change their minds. It's true of bureaucracies and armies and political parties or ideologies. Through it all, Kluger does an excellent job of explaining how seemingly complicated things aren't as well as the opposite. He takes complex matters and makes them simple to understand in a very entertaining and engaging way. In short, this is a really cool book!

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