Why A Complex World Needs Simpler Rules, And Absolute Metrics: Have You Ever Owned A Motorcycle?

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Why A Complex World Needs Simpler Rules, And Absolute Metrics: Have You Ever Owned A Motorcycle?

By: greenbackd

In a great article The Wiki Man: If you want to diet, I’m afraid you really do need one weird rule Rory Sutherland argues that we require a “black-and-white, binary approach” to things we find psychologically difficult to follow. Sutherland says, “And as the world’s religions have known for thousands of years, abstinence is far easier than the continuous exercise of self-restraint. Or, as the neuroscientist V.S. Ramachandran suggests, “humans may not have free will but they do have free won’t.”

Absolute rules (if X, then Y) work with the grain of human nature. We feel far more guilt running a red light than breaking a speed limit. Notice that almost all religious laws are absolute: no food is half kosher; it is or it isn’t. No Old Testament prophet proposed something as daft as the French 35-hour ‘working-time directive’: they invented the Sabbath instead.

In a more complex world weighed down by Big Data, convoluted tax structures and impenetrable legislation, do we actually need more of what religion once gave us: simple, unambiguous, universal absolutes? In law such rules are known as Bright Line Rules: rather than 20 million words of tax law, you simply declare ‘any financial transaction whose only conceivable motivation is the avoidance of tax is by definition illegal’.

Does a complex world need simpler rules? And simpler metrics?The temptation is that because we have gigabytes of data, we feel the need to use all of it. Perhaps all you need is a few bits of the right information?

During the second world war, experts needed to decide whom to train as RAF fighter pilots. Today this would mean a battery of complex tests. Back then they used two simple questions: 1) Have you ever owned a motorcycle? 2) Do you own one now? The ideal recruits were those who answered 1) Yes and 2) No. They wanted people who had been brave enough to ride a motorbike but were sane enough to abandon the habit.

How many of the world’s problems could be solved if we abandoned this pretence of perfect rationality and fell back on simple, heuristic rules of thumb? According to the brilliant German decision-scientist Gerd Gigerenzer, quite a few.

The investing corollaries are easy to find. I’ll expand on that later this week.

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h/t @abnormalreturns and @farnamstreet

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