Kafkaesque Bureaucracy

intermediate2 min readlaw · statistics · philosophy · psychology

Taleb uses Kafka’s bureaucracy and the difficulty of judging portfolios to discuss failures of intuition and expertise. He warns against both rejecting mathematics and trusting a model without judging whether it fits the problem.

THE IDEA

An Absurd World

Kafka’s prophetic book, The Trial, about the plight of a man, Joseph K., who is arrested for a mysterious and unexplained reason, hit a spot as it was written before we heard of the methods of the “scientific” totalitarian regimes. It projected a scary future of mankind wrapped in absurd self-feeding bureaucracies, with spontaneously emerging rules subjected to the internal logic of the bureaucracy. It spawned an entire “literature of the absurd”; the world may be too incongruous for us. I am terrified of certain lawyers. After listening to statements during the O. J. trial (and their effect) I was scared, truly scared, of the possible outcome—my being arrested for some reason that made no sense probabilistically, and having to fight some glib lawyer in front of a randomness illiterate jury.

Mere judgment may suffice for some simple decisions. It is easy for a society to live without mathematics—or traders to trade without quantitative methods—when the space of possible outcomes is one-dimensional. One-dimensional means that we are looking at one sole variable, not a collection of separate events. The price of one security is one-dimensional, whereas the collection of the prices of several securities is multi-dimensional and requires mathematical modeling—we cannot easily see the collection of possible outcomes of the portfolio with a naked eye, and cannot directly visualize all its dimensions at once. We risk relying on bad models (admittedly, we have) or condoning ignorance—swinging between the Carybde of the lawyer who knows no math to the Scylla of the mathematician who misuses his math because he does not have the judgment to select the right model. In other words, we will have to swing between the mistake of listening to the glib nonsense of a lawyer who refuses science and that of applying the flawed theories of some economist who takes his science too seriously. The beauty of science is that it makes an allowance for both error types. Luckily, there is a middle road—but sadly, it is rarely traveled.

When to use it

Predicting stock market behavior using only historical trends ignores multidimensional interactions.
Legal systems where procedural rules become so complex that they obscure justice.
Designing organizational policies without considering feedback loops leads to unintended consequences.
Evaluating risk in a project with many interdependent factors using only single-variable analysis.

FROM THEORY TO EVERYDAY LIFE

In practice

The O.J. Trial

Taleb describes his fear, after hearing arguments in the O. J. trial, of facing a lawyer and jury who misunderstand probability. The example reports his reaction to the proceedings.

Multidimensional Portfolio Visualization

A portfolio involves several prices that can move together or differently. Those joint possibilities are harder to inspect directly than one price series, so a model can help organize them, provided its assumptions are examined.

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A MOMENT TO REFLECT

Put it to work.

How do bureaucracies in your own field create absurd or self-reinforcing rules?
In what situations do you rely on intuition versus mathematical models, and what are the risks of each?
Can you think of a time when a complex outcome with multiple variables was misinterpreted due to oversimplification?