When ‘Big Data’ is too much data…

Suppose you are monitoring a system, say a human brain, a chemical plant, an asset portfolio, a traffic system. Suppose there are hundreds of parameters that you are monitoring. How do you get the idea of how things are globally going? Which parameter do you look at? How do you "add them up"? How can you blend all the information into one parameter that would cover an idea of the situation?

One way to map (transform) multiple channels of data onto one scalar function is via complexity. Complexity is a scalar function obtained from a sampled vector x(t) of N channels. The function is computed as C = f (T; E), where T is the Topology of the corresponding System Map (see examples of such maps for an EEG, or an ECG) and E is entropy. Given that entropy is measured in bits, C is also measured in bits, and represents the total amount of structured information within the N-channel data set.

If the N channels of data are sampled each at a certain frequency but within a moving window of a certain width, the result is a time-dependent function of data complexity C(t). The process is fast and may be performed in real-time using OntoNet™, our Quantitative Complexity Management engine, as illustrated in the scheme below (the blue arrow indicates the direction of time flow).


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How Crises Model the Modern World

Crises are our new reality. “Black swans” are increasingly becoming the norm; our systems, environments, contexts are structurally prone to crises. Doing more of the same will not be the appropriate way to deal with modern crises: a paradigm shift is needed, based on a more accurate understanding of the dynamics of complex systems. This paper is an invitation to change the theoretical vision of crisis and crisis management, and the education and training of all actors involved.

Global Crises… is a paper that could, very easily, have ended up as an exercise in mental masturbation BUT it is so much more than that. Read it and you will learn!

In physics, the Lyapunov theorem on stability of systems states that “In the vicinity of its equilibrium points, the solutions of a non-linear system are similar to the ones of the equivalent linear system”. This means that as long as your system is near its equilibrium point, you can use the techniques usually used for linear systems to get answers on the behaviour of the non-linear system. It is a non trivial theorem that can explain why techniques in risk and crisis management could still be used quite effectively during the previous decade or so, even though complexity had already become increasingly apparent.

However, the need, in the current framework of crisis management, for adding more and more
parameters to describe the behaviour of the system should have been a clear indication that something had changed. One cannot hope to describe a nonlinear dynamic system with a patchwork of simple parameters.

A non-linear system implies, in most cases, unpredictable behaviour, such as the inversion of the Earth’s magnetic field in physics. We must now prepare for the unexpected, and not predict the predictable. We must be more creative, learn to be surprised, and to act rationally and creatively during the phase of ignorance, information surge and shock.

Must the future of a country be qualified only by its public debt?

In truth, instinctively, we already know the answer to this question but THE point is that by measuring just how complex we can gain new insight and the potential to make economies more resilient.

Why is the economy is so complex? The reason is that there are a lot of factors involved, these factors cannot be easily measured as mathematical variables, if we measure some of them, there are a lot of links among the variables that we have chosen, there is not a perfect mathematical model of these relationships, and there is a lot of uncertainty about the way that rulers will make decisions in the future and the consequences that will produce these decisions.

via October 2012: Must the future of a country be qualified only by its public debt? « Guru’s Analysis.

Why systems-thinking and Complexity management are vital for survival

Collapse, if and when it comes again, will this time be global. No longer can any individual nation collapse. World civilization will disintegrate as a whole. Competitors who evolve as peers collapse in like manner.


The Collapse of Complex Civilisations (1988, p214)

Complexity is a characteristic of dynamic systems. It is the multiple inter-connections, sometimes referred to as the “problem-solving capability”, without which the system cannot perform its intended purpose(s). Every system has a sustainable level of complexity [critical complexity].

Butterfly Effect: Due to the inter-connectedness of systems the impact of a single (even relatively minor) event can be manifest in more than one outcome.

Catastrophic changes in the overall state of a system can ultimately derive from how it is organised — from feedback mechanisms within it, and from linkages that are latent and often unrecognised.

From a report for Federal Reserve Bank of New York Read more of this post

SMEs entering 2012 with mixed emotion – AXA Commercial Lines

This is particularly bad news for “a nation of shopkeepers” and a damning indictment of the strategies adopted by insurers and brokers alike!

Instead of incentivising and rewarding a culture of loss prevention, which serves EVERYONE well, the insurance industry sold themselves and their customers short in its indecent haste to satisfy their own, short term, financial goals. And the insurance industry “knows” about tail risk!!!

Who actually benefits from buying “risk protection”? Please take a look at some of the “related articles” below and consider whether businessno-trust-300x225 owners who have access to unprecedented amounts of information on a wide range of “risk” subjects are, generally, more “stupid” or just particularly poorly served and advised!?

“When it comes to the fortunes of the UK’s SMEs, there is a more complex picture out there than the headlines would lead us to believe. It’s not all doom and gloom for sure. However there is a real need for valuable advice when it comes to risk management given the fact that, when asked to identify key risks facing their business, nearly a quarter of UK SMEs (23%) couldn’t name a single one. I find this quite staggering. In my view it means that brokers have a major role to play in helping their clients to both understand the risks their businesses face during these difficult times as well as manage them.”

via SMEs entering 2012 with mixed emotion says AXA Commercial Lines.