CFA Society Atlantic Canada hosted a webinar titled Complexity, Turing, Covid and the Financial Analyst presented by Rick Nason, associate professor of finance at Dalhousie University. See the end of this post for links to Prof. Nason’s books.

Notes based on scribbles during the call, possibly inaccurate.

Complexity properties: emergence, leaderless, unpredictable patterns

An example of emergence is the patterns created by murmurations of starlings. (Prof. Nason showed still photos, joking that as a risk-management consultant he thought it would be too risky to include video in the webinar.)

Systems theory. From the book Getting to Maybe: How the World Has Changed, there are three types of systems: simple, complicated, and complex.  Examples:

  • SIMPLE – a cake recipe
  • COMPLICATED – the space shuttle, accounting systems
  • COMPLEX – teenagers, financial markets

Complicated: grand design, designer/leader, laws/axioms, elements are isolated, repeatable/reproducible, predictable.

Complex:  no design, leaderless, no laws/axioms, elements are connected, emergence, no predictability.

Properties of complex systems from the Centre for the Evaluation of Complexity Across the Nexus: Feedback, self-organization, levers and hubs, non-linearity (Butterfly Effect), stability domains*, adaptation, path dependency, evolution, unpredictability, unknowns, distributed control, nested systems, multiple scales.

* Just when you think it’s a trend, you find out it’s a cycle.

As the economy becomes more complex, the ability of central banks to manage it is diminished.

Fundamentally there are things about complex systems that are unknowable.

Assumption: Markets are complicated. Reality: Markets are complex.

Random factoid: Hooke’s Law, the physics of how springs work

Complexity Components

Natural Systems

    • Agents
    • Connection
    • Adapt

Different agents interact in different ways.

People systems add two more components.

    • Agents
    • Connection
    • Adapt
    • Randomness
    • Emotion

Emotion is based on connection and adaptation, which helps to explain why ripped jeans are popular with teenagers until they aren’t.

What to do? Understand which components are simple, complicated, or complex.

What to do? Think, Learn, Evolve. (Manage, not solve.)

Ant colonies have neither command and control nor hierarchical structure. There are some ants whose role is to do random stuff; without them, the colony would never find new food sources. This is a great example of the Try, Learn, Adapt approach. Realize that results will change each time. [Side note: Rory Sutherland tells a similar story about bees in his book Alchemy.] Nature is complex.

Sociological Imagination by C. Wright Mills is about the ability to see the connection between personal issues and social structure.

We must differentiate between behavioral finance and sociological finance.

What to Do? Embrace complexity. This requires the humility to say, “I don’t know, but let’s try this.”

In a complex system, intelligence doesn’t win.

The very best students in business school (in terms of grades) are complicated thinkers.

Knowledge is a commodity.

The Serenity Prayer (Reinhold Niebuhr) → The Analyst’s Prayer

God, grant me the serenity

to accept the things I cannot calculate,

the courage to calculate the things I can,

and the wisdom to know the difference.

Alan Turing. Behind one curtain is a human. Behind another curtain is a computer. The Turing Test investigates whether people can detect if they are talking to machines or humans. Prof. Nason quotes the book Humans are Underrated: What High Achievers Know that Brilliant Machines Never Will by Geoff Colvin. p.41-42 “What are the activities that we humans, driven by our deepest nature or by the realities of daily life, will simply insist be performed by other humans, regardless of what computers can do?” To paraphrase, what can you do that people don’t want a computer to do? Prof. Nason’s answer:  You can understand and embrace complexity. A computer or bot can’t deal with complexity.

Rita McGrath [author of Seeing Around Corners: How to Spot Inflection Points in Business Before They Happen] wrote Management’s Three Eras: A Brief History, Harvard Business Review, July 30, 2014. We’ve maxed out Scientific Management. We’re now coming into the era of empathy. [See also Tom Peters, Rich Kaarlgard, Nicole Lipkin, Daniel Goleman]

Final Thought: (not really)

“In times of change learners inherit the earth; while the learned find themselves beautifully equipped to deal with a world that no longer exists.” – Eric Hoffer

  • Complicated: the domain of the Learned
  • Complex: the domain of the Learners


Question about the response to Covid-19.  Answer: The solutions looked at the epidemiology, but ignored everything else. In 18 months we’ll be looking at the unintended consequences. Already we see a rise in domestic abuse, suicide rates, stress levels, as well as neglect/delay in the treatment of other medical problems.

Prof. Nason’s background is in nuclear physics. With the 3-Mile Island disaster, deaths from stress > deaths from radiation. Similarly, with September 11, increased deaths from driving > deaths from the plane crashes.

There was a study about librarians. As they moved from department to department, their investment approach changed.  How you think depends on the people you spend a lot of time with.

Question: Is complexity the variable we don’t know? Answer: No. Even when we have good data, complex systems are unpredictable. Complexity acts like the “God particle.”

Question: Where can we find out more about complexity. Answer: Prof. Nason’s book [see below] and the Santa Fe Institute, which was founded in 1984 and received funding from Citibank:

… a chance encounter at the Russell Sage Foundation in 1986 between Adams and John Reed, the soon-to-be-CEO of Citicorp, led to a major programmatic breakthrough for the Institute.

Citi had taken a beating in Latin American investments, and Reed was trying to understand why the bank’s economists hadn’t foreseen the impending downturn. Adams suggested the Institute might be able to help Citi (and economics) develop new approaches.

Cowan soon invited Reed and a few of his key staffers to Santa Fe to meet with key economists and scientists in a brainstorming session on international finance as a complex system. In August 1986, after a daylong discussion of the complexities of financial markets, Reed agreed to fund a workshop on “The Economy as an Evolving Adaptive System,” to be led by Phil Anderson and Kenneth Arrow, both Nobel laureates and both involved in the new Institute.

Rick Nason is the author of  It’s Not Complicated: The Art and Science of Complexity in Business and several books on risk management including Rethinking Risk Management: Critically Examining Old Ideas and New Concepts

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