David Brooks and Ralph Stacey

In a past column, New York Times columnist David Brooks writes (italics mine):

The crisis was labeled an economic crisis, but it was really a psychological crisis. It was caused by a mood of fear and uncertainty, which led consumers to not spend, bankers to not lend and entrepreneurs to not risk. No amount of federal spending could change this psychology because uncertainty about the future remained acute.

Essentially, Americans had migrated from one society to another—from a society of high trust to a society of low trust, from a society of optimism to a society of foreboding, from a society in which certain financial habits applied to a society in which they did not. In the new world, investors had no basis from which to calculate risk. Families slowly de-leveraged. Bankers had no way to measure the future value of assets.

Cognitive scientists distinguish between normal risk-assessment decisions, which activate the reward-prediction regions of the brain, and decisions made amid extreme uncertainty, which generate activity in the amygdala. These are different mental processes using different strategies and producing different results. Americans were suddenly forced to cope with this second category, extreme uncertainty.

Economists and policy makers had no way to peer into this darkness. Their methods were largely based on the assumption that people are rational, predictable and pretty much the same. Their models work best in times of equilibrium. But in this moment of disequilibrium, behavior was nonlinear, unpredictable, emergent and stubbornly resistant to Keynesian rationalism…

…The nation had essentially bet its future on economic models with primitive views of human behavior. The government had tried to change social psychology using the equivalent of leeches and bleeding. Rather than blame themselves, Americans directed their anger toward policy makers and experts who based estimates of human psychology on mathematical equations.

In Brooks’ cautionary tale, he describes a not-to-distant-future where social circumstances and expectations transform (a tipping-point, phase-state transformation) from a high-trust, stable, optimistic state to a low-trust, unstable, pessimistic state. Society no longer sees itself as a world comprised of autonomous rational agents guided by Adam Smith’s invisible hand. Rather, the world is perceived as uncertain and unknowable: a hostile environment for the formation of trust and (to paraphrase) where different mental processes use different strategies and produce different results.

Brook’s analysis reminds me of Stacey’s Agreement and Certainty matrix:

Agile Team Development SolutionsIQ

The high-trust social state Brooks describes is one where there is a high degree of certainty and broad social agreement that faith in certainty is well-founded. This provides a stable platform where future outcomes largely conform to expectations derived from common experience. The fact base of common experience is further bolstered by logical arguments that add theoretical legitimacy, which are in turn accepted as part of the fact base. The feedback loops serve to further stabilize expectations of certainty, which leads to an increased likelihood of certainty. When this social system is destabilized by a shock to the system (let’s say by the bursting of a global real-estate bubble), substantial doubt about the legitimacy of previously accepted facts and arguments pushes the value of the X-axis into the uncertain zone. Broadly shared uncertainty undermines the ability to sustain social agreement, because the previously accepted fact base has been de-legitimized. The system dynamics change from a stable system (where the ability to predict future outcomes is pretty good because the society expects that its constituents can and will act rationally) to a volatile, emergent system where the constituents are unable to act rationally—at least collectively—because they no longer share a common perception of how the world operates.

What I find fascinating about this particular example is that it is the social perception of uncertainty (or certainty) that determines the reality of uncertainty (or certainty). In fact, in this social domain it is unclear what meaningful distinction there is between “perception” and (so-called) “reality.”

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