Paradigms and The New Science of Complexity Presentation copyright © 2000 by Barry Brownstein

The Future Belongs To The Humble l “Some people will never learn anything for this reason: because they understand everything too soon.” l “No one is less ready for tomorrow than the person who holds the most rigid beliefs about what tomorrow will contain.” l “We don’t know what we don’t know.” l “Since the existing theory is producing the current results, new levels of results require new theories.”

More on Paradigms l “When we unaware- then the fixes and adaptations to circumstances create an increasingly complicated system in which rule books look like your only salvation.” l When we are aware- “management is accomplished with minimum effort or intervention. There is no need for tight control on those doing the work … Incompetence gets turned around through education”

Predicting in Hollywood l > $20 million/picture –Nicolas Cage –Jim Carrey –Kevin Costner –Tom Cruise –Harrison Ford –Mel Gibson –Tom Hanks –Robin Williams –Bruce Willis l Box office/last film –16.5 (million) –26 –35.1 –55.7 –31.0 –81.5 –79.4 –5.0 –27.1

Forecasting Financial Markets l Q. In a ‘average’ year of interest volatility, if you invested a $1000 in treasury bill futures and were correct about the direction of interest rates for 52 straight weeks how much money would you have?

More On Stock Forecasting l Markets are a spontaneous order and perhaps are inherently unpredictable, but not random l Do events drive markets? –If you had tomorrow’s newspaper could you predict the market?

Forecasting The Weather l Next day accuracy 70% l 2 day accuracy 63% l 3 day accuracy 60% l 4 day accuracy 55% l long-term not much better than chance l The metaphor of the “Butterfly Effect”

Chaos and Complexity n Major paradigm shift in the natural sciences and social sciences. n Previously explanations of how the world works were cast in terms of order and regularity. System moved in predictable ways. n Now, the emphasis is on the creative role of disorder and irregularity. Systems move in self-organizing ways with unexpected and unpredictable outcomes.

Linear vs. Complex Systems n a given cause (action) has one effect (outcome) n small effects negligible n additive, independent n not highly sensitive to initial conditions n closed system in equilibrium n change is smooth except for outside shocks n predictable n a given cause can have many different outcomes n small effects vary n synergistic, interdependent synergistic, interdependent n very sensitive to initial conditions n open, self-organizing systems far from equilibrium; allows for discovery n abrupt and erratic change not uncommon n inherently unpredictable

Interdependence l “Every being in nature has its existence so connected with other beings that if set apart from them it would instantly perish.”- Ralph Waldo Emerson l “In civilized society man stands at all times in need of the cooperation and assistance of great multitudes”- Adam Smith l Orioles vs. Yankees –Bernie Williams vs. Albert Belle

The Importance of Language l “A complex system such as a corporation can occur only in a linguistic culture. And it can only occur in a system of language that allows for complex systems.” l Our linear language for both social and business affairs makes it difficult to deal with complex systems. l “Language includes practices of speaking and action.” –“showing the way by going first”