Chaos and common sense

 

My last post focused on two of the four contexts that decisions are made under.  As a quick review the four contexts are simple, complicated, complex and chaotic.  These contexts were described in the this Harvard Business Review article.  You can also refer to my previous posts regarding these conditions.  The article is focused on business circumstances and leadership decisions.  I related the article to personal situations and the decisions we make for our lives and families.  I also proposed in my previous post that most of the personal decisions we make are within the simple and complicated contexts.  As a quick review, the simple context is address by enacting known solutions.  These solutions are well understood and have a historical track record of success.  Situations that fall into the complicated context are addressed by common sense,  risk aversion and expert analysis.  In both of these there are many known and understood elements.  In the simple context almost all factors are known and understood, that is why a rigid and well known course of action is applied.  When a context is complicated many of the factors are known but the details may not be.  As an example as a homeowner you may notice wet spots in your attic.  This is a sign of a leaky roof.  You know that repairs are needed.  You may not know what type of repairs are needed.  Do you need a small area of the roof shingled or does the entire roof need replacing.  So you call a roofing company to have a look at it.  To mitigate risk you may have a couple companies look at it and then compare their findings.  You may not know the correct path to the known outcome (stop the leak) but the expert will.

Since my last post a number of things have changed.  I would love to give you a rundown of all the changes.  However it has been such a roller coaster ride of events that a chronological summary would induce a terrible case of motion sickness.  Lets just say it has been a bumpy ride.  As an example the ongoing tariff saga.  One day the tariffs are going to be imposed and the next day they are delayed.  The next week new tariffs on different goods.  A day latter delayed again.  On it goes.  Government workers are laid off then recalled when it was determined that their roles are critical to national security.  It certainly seems to be a chaotic situation.

Before deciding how to proceed with things one needs to assess the situation to determine how the current state of affairs affects them.  Also one needs to understand their place within the chaos and the affect that has on the decision making process.  Such an assessment directly affects what decisions are to be made.  As a quick illustration recall the Tylenol scare in 1982.  Tylenol pills (specifically extra strength Tylenol) had been contaminated with potassium cyanide and as a result a number of people died after consuming the product.  Nobody could identify what bottles had been tampered with.  No one could accurately predict what area of the country these bottles ended up in.  As you could imagine a very chaotic situation.  The decisions that the company leadership was faced with were very different than the decisions store owners needed to make.  Consumers had yet a different set of decisions to deal with.

I think the same holds true during these chaotic times.  I am not a business owner or a union leader so I am not responsible for softening the chaos for a group of stakeholders.  I have my own set of issues to deal with.  My own concerns and my own criteria for success.  I am relatively insulated from the current chaos.  Being retired I am not in fear of losing a job.  We have two relatively new vehicles so I am not under immediate pressure from tariffs.  What directly affects me is food prices, lumber prices and stock market volatility.  Like everyone I have to eat, so increases in food prices have an immediate impact. I can address most of this by making careful choices regarding eating habits.  I some cases I could substitute cheaper alternatives.  You ever pull a Tupperware container out of the fridge and not be able to recognize what it is?  Usually these end up in the garbage bin.  Buying and preparing appropriate amounts of food can help alleviate this problem.  We are also considering repairs to our 100 year old home.  This may involve significant replacement of wooden siding.  Lumber tariffs would have an impact on the cost of that project.  Fortunately these repairs are not immediately needed so we could delay them until things stabilize.

The most troubling situation is stock market volatility.  As I type this the markets continue their downward trend.  The money we have saved is to support us in retirement.   Retirement is approaching quickly for us.  As I have mention before, I am retired and my wife hopes to retire within the next 12 to 18 months.  If what the market is experiencing is a correction we have little time for it to take effect.  If we were 5 years (or more) from retiring I would stay the course and let the correction work itself out.  This is definitely a more intricate problem than food and lumber prices.

So how to deal with this chaotic set of circumstances?  I feel the first step is to accurately assess the impact.  With accurate data we should be able to soften some of the emotional impact of the current situation.  When I look at the actual numbers of my 401K my account is down 3.62%.  No one likes negative numbers, however this does represent a small reduction.  Also I do not recall doing cartwheels over the last 2 years as the account rose sharply.  I find myself thinking of loss aversion from a previous post.  Loss aversion is when we feel the hurt of a loss more than the joy of an equal gain.  As the account rose over the last couple years I could have cashed out some of the gains.  I could have then spent the money on many things.  I did not act rashly as my account rose sharply so why would a smaller loss compel me to be equally rash.  A tactic suggested in the article linked earlier is to look for stability.  From those areas of stability work to transform your situation from chaotic to complex.  What it really boils down to is accepting what I cannot control working with the things I can control and being smart enough to tell the difference.  Basically the Serenity Prayer:

God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference

I cannot control the current administration, I cannot control the over all markets.  I do not possess a magic wand that controls inflation.  I can however control my spending and not allow emotional sensations to control my actions.