Research into piles of sand grains showed that the timing of sudden collapses is quite unpredictable, but there is an inverse correlation between their magnitude and likelihood. As the sand piles up, "threads" of instability form, that can be triggered by the fall of a single grain in the wrong place. This is akin to the "Butterfly Effect" in catastrophe theory, I suppose.Mauldin connects this up with a paper published last year, about uncertainty created by humans in the development of their economic structures:
...the greater the number of connections within any given economic network, the greater the system is at risk.
This underscore the concerns I hinted at in an earlier post. The potential for catastrophic change is building up, and we can't predict what will be the trigger. Therefore, all the connections we are forming with each other need to be balanced by provisions for disconnecting, or for insulating one region from changes occurring in another.
To use an analogy, the supertankers that take oil around the world's oceans are internally divided into compartments. It would be cheaper, and so more profitable, not to install the internal compartments. But without them, a large wave hitting the ship could cause a movement in the liquid cargo that would shift the balance and quite possibly sink the vessel altogether.
So there is a trade-off between efficiency and survival.
Another aspect is how human behaviour changes in relation to risk perception. For example, research shows that when road junctions are widened and vision-obscuring vegetation cleared, drivers compensate for the extra security by going faster and less carefully. I understand that each of us has his/her our own preset level of risk tolerance, and when circumstances change, will seek to bring things back to that level .
But what if you don't fully understand the new circumstances? A miscalculation as to the level of security inherent in the situation could lead to your behaving more dangerously than you realise. The complexity and obscurity of CDOs, derivatives and credit default swaps are examples in the world of finance and economics, but surely this applies to other fields, too.
Perhaps conservative instincts are not just laziness, stupidity and timidity, but survival instincts. Have you noticed how those maddeningly slow drivers don't have dents in their old, lovingly-polished cars?
Maybe I'll get a hat, for driving.