by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc
In risk management one of the mantras is to get everyone communicating with the same language on the same page with the same information network? While intuitively appealing, this may be counterproductive. Let me provide three quick examples.
1. Ants – as discussed in a previous blog, ants find food through feedback loops based on a sent trail left by other ants. What is less known is that ant colonies also have dedicated ants that intentionally do not follow the path of others but instead seek out other sources of food via random searches.
2. In his book “Gut Feelings”, Gerd Gigerenzer explains how too much information can actually lead to less optimal decision making. Essentially knowing too much about a situation, having too much information available, or believing that you have too much information leads to inferior decisions.
3. If everyone has the same information then you get systemic risk as everyone acts en masse – to frequently counterproductive outcomes. This is seen in stock market bubbles and crashes, it is seem in program trading, it is evidenced by a form of groupthink.
Having the same language, frameworks and metrics sounds ideal in theory – but perhaps a little bit of confusion can ironically be helpful.
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