In defense of the uncorrelated thinker

From Luca Dellana’s excellent newsletter:

“Correlated behaviors are a form of systemic risk, and so are correlated beliefs. Something to keep in mind when praising the benefits of forcing the best upon everyone.”

With all behaviors there is the risk that it may not produce the results you hoped for. Insurance against this is what your other behaviors are for. Obviously there is a boundary inside of which behaviors must be correlated. If you want to get a job today, your choice of attire (suit) is correlated with how you spent the last two evenings (studying for interview), which is correlated with your Uber destination in the city center (Price Waterhouse Cooper building, 3rd floor).

The shadow of hidden risk grows as the correlated bundles of behavior get bigger. You meet your future wife at PWC. You socialize with co-workers, and the company pays for your health insurance. A marvelous set of perks. Now you have real skin in the game, more so when as part of your first promotion package you receive stock options.

Gradually the layers of snow accumulate on top of each other on the mountain. Warning: avalanche risk. If the company fails, your co-worker friends move to another city, you have to pay your own spiked health insurance costs and your investment portfolio takes a major hit. Your downfall is the fractal microcosm of an economic bubble bursting, which is probably actually happening if PWC is going bust since it appears our corporate debt structure is as fragile…