Without the “Great White Shark” is one world, with the “Great White Shark” there is another world.
How do we make optimal decisions in a risky society?
In today’s extraordinary period, there are three key words worth noting: one is “black swan”, the other is “gray rhino”, and the third is “great white shark”. The so-called “black swan” means that this kind of event is very rare, but the destructive power is very strong, and the probability of occurrence is very low. “Gray rhino” means that this kind of event will happen with a high probability, but it will not happen now, such as environmental pollution or the gradual endangerment of rare animals.
As for the “Great White Shark”, you can imagine that there is a great white shark in a calm ocean. It has been here, but you don’t know where it is in the ocean. You have to make decisions now, such as whether to go fishing or not? If you don’t go fishing, you may starve to death; but if you go fishing, the light ones will be injured and the heavy ones will be killed. What do you do now?
This example is a bit like the world under the influence of the epidemic. We have to make a lot of decisions, but the decision itself is a kind of risk. Without the “Great White Shark” is one world, with the “Great White Shark” there is another world. You know that it can happen at any time, but you don’t know when it happens or how it happens. Under this circumstance, we have to abandon some of the concepts of past economics and master new decision-making rules, which might as well be called “Great White Shark” economics.
The first rule is to ensure survival first. Economics tells you that if you are a producer, you seek to maximize profit; if you are a consumer, you seek to maximize utility. But in an abnormal world, survival comes first.
For example, if you are an entrepreneur and you want to buy stocks, one stock is high-risk and high-yield, and the other stock is low-risk and low-yield. Which one would you buy? In the normal world, expecting high returns is definitely to choose high-risk projects. But in an abnormal world, survival is the first thing. If you choose a low-risk project, you have a high probability of living. Therefore, the decision-making principle at this time is no longer profit maximization, but survival first. This is called the “maximum-minimum” principle in game theory, which means that the decision-making is not to choose which benefit is the greatest, but to choose which cost is the least under all possible losses.
The second rule is to have the consciousness of “changing lanes”. Studies have shown that almost 70% of diversified mergers and acquisitions have failed and should be developed in a certain area. But if you are in an abnormal world, doing so may be finished.
For example, the automobile industry has suffered heavy losses due to the epidemic. Under such circumstances, BYD has transformed into a large mask manufacturer. In an abnormal world, sometimes changing the track is more important than becoming a champion on the original track, because the original track may end in an abyss.
The third rule is to borrow less and save more. There is a hypothesis in economics called the permanent income hypothesis. If you know that your future income will increase, then you can spend future money now, so that you can increase your consumption now. But in an abnormal world, you don’t know how long the future cash flow can support. Future expectations are unstable. At this time, borrowing money to consume, spending in advance, and overdrafting in the future is very dangerous.
The fourth rule is to spend time analyzing information. If the economy is stable, generally speaking, competition will optimize the allocation of resources, and finding the best price is equivalent to mastering all the information. But in an abnormal world, price is no longer the only useful information, and even price itself is information that disrupts decision-making. So you can’t just look at the price, you have to spend a lot of time to analyze the information, and the amount of information required for each person’s decision is very large. In other words, the information is now highly asymmetric, and you need to make careful decisions.
