Radical Uncertainty

Sustainability and Uncertainty

A Sustainable business, says Adam Werbach, is one that is able to thrive in perpetuity. [1] The same definition also applies nations, civilizations and even humanity as an entirety. The term “perpetuity”, however, involves anticipation of the future, so that appropriate actions can be taken in the present.

“Prediction is very difficult, especially about the future” – attributed to Niels Bohr, (or maybe Yogi Berra).

In some circumstances, prediction is not so difficult. For example, it is easy to predict that a roll of two dice will result in an outcome between 2 and 12, and the probability of each outcome (from 2 to 12) is readily calculated. Insurance companies prosper because probabilities of morbidity, mortality and other risks within suitably defined groups can be reliably estimated.

However, prediction becomes increasingly difficult as situations become increasingly complex and the set of possible outcomes becomes less well defined, as they do in the real world. Uncertainty prevails. And it gets worse:

“Radical uncertainty refers to uncertainty so profound that it is impossible to represent the future of a knowable and exhaustive list of possibilities to which we can attach probabilities… when businesses invest, there are no dice with known and finite outcomes on the faces; rather they face a future in which the possibilities are limitless and impossible to imagine.” [2]

The concept of “radical uncertainty” originated in macroeconomics. [3] Macroeconomics, of course, deals with the aggregate economic behaviors of large groups of people, their enterprises and their governments. Aggregated economic behaviors can be viewed as systems that can, at least in principle, be modeled mathematically. Such systems are usually complex, with components that interact, time dependences and feedback loops. When complex systems are perturbed, outcomes can be quite surprising. This applies to macroeconomic systems and to other complex system, especially those where human behaviors are involved.

Here are several examples where complex systems might well threaten a firm’s, a nation’s, or even humanity’s ability to thrive in perpetuity in today’s globalized world:

>> Climate Change – As a recent post to this blog explained, the term “Climate Change” refers to a set of negative effects expected from warming of the Earth’s atmosphere due to human – induced increases in the concentration of greenhouse gases — especially carbon dioxide – in the atmosphere. The atmosphere and its behavior as expressed in weather patterns is a complex system indeed. The nature, magnitude and timing of effects (changes in weather patterns) due to increases in greenhouse gas concentrations remain to be seen.

>> World Financial System: Over the last half century or so, the American economy has experienced recession about once a decade. Over that time, the financial systems that support national economies have globalized and changed in very significant ways. In 2007 – 2008, a major disturbance occurred that, we are told, very nearly resulted in total collapse of those financial systems. Instead, we experienced about seven years of pernicious recession.

However, very little has been done to make those financial systems more robust to future disturbances. The periodic occurrence of recessions suggests that the financial system is not stable. If the episode of 2007 – 2008 very nearly resulted in total collapse of the world’s financial system, worse may well be in store in the future.

>> Global Epidemic: The 20th century witnessed a dramatic reduction in epidemic outbreaks of communicable disease. In the aftermath of World War I, an outbreak of “Spanish” influenza resulted in more deaths than the war itself. “Childhood diseases” including mumps, chicken pox and measles (along with many other once common diseases) have all but disappeared.

However, a recent outbreak of Ebola fever in Africa emphasized the ease with which today’s global transportation system can change a local outbreak into a global catastrophe. Further, science has learned that pathogens can evolve rapidly into new forms that require new vaccines or new treatment techniques – which may require considerable time to find, prove, and distribute.  

>> Black Swans: Nassim Taleb teaches us of the ubiquity of Black Swans:

“A Black Swan is an event, positive or negative, that is deemed improbable, yet causes massive consequences”

“… the world is far, far more complicated than we think, which is not a problem, except when most of us don’t know it. We tend to ‘tunnel’ while looking into the future, making it business as usual, Black Swan free, when in fact there is nothing usual about the future.” [4]

What to Do?

The world, then, may well be “far, far more complicated than we think”. Radical uncertainty may be considerably closer to the norm than we appreciate. If so, how does an individual, a firm, a nation, or humanity as a whole best approach the future? Look for some thoughts on that in the next post to this blog.

Chuck - SedonaThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.

[1] Adam Werback, Strategy for Sustainability (2009), Harvard University Press, page 9

[2] Mervyn King was Governor of the Bank of England during the financial crisis of 2007 – 2008. This quotation is from his 2016 book The End of Alchemy – Money, Banking and the Future of the Global Economy.  This book includes a full chapter entitled Radical Uncertainty: The Purpose of Financial Markets.

[3] Dr. Frank Knight, often referred to as the “father of macroeconomics”, introduced the concept of radical uncertainty in a 1921 academic paper, Risk, Uncertainty and Profit, University of Chicago.

M. Keynes, likely the most influential economist of the 20th century, devoted Chapter 12 of his best known work, General Theory of Employment, Interest and Money (1936) to the concept of radical uncertainty. (Keynes, incidentally, did not hold a degree in economics, doctorate or otherwise. He studied mathematics, emphasizing probability, at Cambridge.)

[4] These quotations are from Nassim Talib’s New York Times bestseller The Black Swan (2016) Talib and his book are both engaging, as well as perceptive.

The Mystery of the Missing Carbon

Last week’s essay [1] introduced decarbonization as a supplement to greenhouse gas emissions reduction. This essay expands on decarbonization by providing an example. It also emphasizes the importance of appreciating how complex systems behave. — C.H.

Biosphere 2

Biosphere 2 sits in the Arizona desert, north of Tucson. It looks like a figment from a science fiction novel. At 3.14 acres, Biosphere 2 is the largest artificial closed ecological system ever constructed.  It encloses an artificial rainforest, wetland, grassland, fog desert and agricultural area, each with appropriate flora and fauna. Biosphere 2 was intended to resemble Biosphere 1 – the earth’s surface and atmosphere – as closely as possible.

Dreamstime - Biosphere 2In September 1991, eight people entered Biosphere 2, closed the airlock and remained within for two full years. They grew their own food and recycled their own waste. They exhaled carbon dioxide in exchange for photosynthetic oxygen from the plant life. Of course, Biosphere 2’s designers took care to provide enough plants to provide enough oxygen for the eight humans and other animals enclosed with them.

Or did they? The oxygen level in the air within Biosphere 2 began at 20.9%, then declined steadily to 14.5% sixteen months later. At 14.5%, air is so thin that human functioning begins to be impaired, as skiers and mountain climbers know. It was necessary to twice add oxygen from outside the enclosure. [2]

The Mystery

Respiration involves exhaling one molecule of carbon dioxide for each molecule of oxygen consumed. When the concentration of oxygen in a closed quantity of air decreases, the carbon dioxide concentration increases in a readily calculable manner. Except that it didn’t. Much of the carbon dioxide disappeared!

Much later, the mystery was solved. The missing carbon dioxide had reacted with exposed concrete to form calcium carbonate. Calcium carbonate is a common mineral, found as marble, chalk, limestone, egg shells, oyster shells and pearls.

So What?

There are two matters of interest here:

First, Biosphere 2’s designers overlooked the potential for reaction of carbon dioxide and oxygen in the air with unsealed concrete surfaces – a chemical reaction that was likely accelerated by carbon dioxide concentrations that were much higher in the closed Biosphere 2 environment than those normally experienced in the world at large.

The point here is that an ecosystem – be it Biosphere 2 or Biosphere 1 – is a really complex system. It is quite easy to overlook factors that can affect the performance of a complex system. Had Biosphere 2 been on the moon instead of in Arizona, eight people would have died.

Second, there is a lot of exposed concrete surface here in Biosphere 1. If a cheap and effective way can be found to promote the reaction of carbon dioxide from ambient air with that concrete where it is, quite a lot – even gigatons — of carbon dioxide would disappear from the atmosphere. That carbon dioxide would become part of the concrete — concrete to be buried or recycled in due course. The reaction which occurred spontaneously in Biosphere 2 was certainly both cheap (free) and effective at sequestering carbon dioxide.

Chuck - SedonaThoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)

P.S: Contact me when your organization is serious about pursuing Sustainability — C.H.

This blog and associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published weekly.

Image: © Woodkern | Dreamstime.comSpace Colony At Biosphere 2 Photo

[1] See Profiting from Decarbonization, this blog, http://jerasustainabledevelopment.com/2015/08/01/profiting-through-decarbonization/

[2] The Wikipedia wiki on Biosphere 2 provided the specifics cited in this paragraph. It also summarizes the rest of Biosphere 2’s interesting story: https://en.wikipedia.org/wiki/Biosphere_2