One - Adapting

 

‘ The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design . ’ – Friedrich von Hayek

 

The electric toaster seems a humble thing . It was invented in 1893 , roughly halfway between the appearance of the light bulb and that of the aeroplane .

 

The ‘ who’s excellent now ? ’ experience is reinforced by a careful study from the economic historian Leslie Hannah , who in the late 1990s decided to trace the fortunes of every one of the largest companies in the world in 1912 .

 

At the top of the list was US Steel , a gigantic corporation even by today’s standards , employing 221,000 workers . This was a company with everything going for it : it was the market leader in the largest and most dynamic economy in the world ; and it was in an industry that has been of tremendous importance ever since . Yet US Steel had disappeared from the world’s top hundred companies by 1995 ; at the time of writing , it was not even in the top five hundred .

 

General Electric and Shell were also in the top ten both in 1912 and in 1995 . But none of the other top - ten titans was in the top ten by 1995 . More remarkably , none of them was even in the top hundred . Names such as Pullman and Singer recall a bygone age . Others , such as J & P Coats , Anaconda and International Harvester , are barely recognisable .

 

The great economic psychologists Daniel Kahneman and Amos Tversky summarised the behaviour in their classic analysis of the psychology of risk : ‘ a person who has not made peace with his losses is likely to accept gambles that would be unacceptable to him otherwise ’ .

 

Along the way , we’ll also be learning about the recipe for successfully adapting . The three essential steps are : to try new things , in the expectation that some will fail ; to make failure survivable , because it will be common ; and to make sure that you know when you’ve failed .

 

And distinguishing success from failure , oddly , can be the hardest task of all : arrogant leaders can ignore the distinction ; our own denial can blur it ; and the sheer complexity of the world can make the distinction hard to draw even for the most objective judge .

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Two - Conflict or: How organisations learn

 

Galvin told Petraeus that the most important part of the job was to criticise his boss : ‘ It’s my job to run the division , and it’s your job to critique me . ’ Petraeus protested but Galvin insisted , so each month the young captain would leave a report card in his boss’s in - tray . It was a vital lesson for an officer unwilling to admit mistakes .

 

Hayek believed that most people overestimated the value of centralised knowledge , and tended to overlook ‘ knowledge of the particular circumstances of time and place ’ .

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Four - Finding what works for the poor or: Selection

 

‘ An empiricist , I was willing to learn by my mistakes and those of others . ’ – Muhammad Yunus ‘ The barrier to change is not too little caring ; it is too much complexity . ’ – Bill Gates

 

A doctor who wants to run a properly controlled trial to test these two options needs approval from an ethics committee . A doctor who prescribes one or the other arbitrarily ( there being no other basis for the decision ) , and who makes no special note of the results , needs to satisfy no higher authority . He’s simply regarded as doing his job .

 

It’s easy to see why the idea of controlled experiments on coronary care patients might make people queasy . What Archie Cochrane had the courage to understand is that the alternative to controlled experiments is uncontrolled experiments . These are worse , because they teach us little or nothing .

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Five - Climate change or: Changing the rules for success

 

As the biochemist Leslie Orgel famously remarked , ‘ Evolution is cleverer than you are ’ , meaning that when an evolutionary process is let loose upon a problem , it will often find solutions that no human designer would have dreamed of .

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Seven - The adaptive organisation

 

First , try new things , expecting that some will fail . Second , make failure survivable : create safe spaces for failure or move forward in small steps . As we saw with banks and cities , the trick here is finding the right scale in which to experiment : significant enough to make a difference , but not such a gamble that you’re ruined if it fails . And third , make sure you know when you’ve failed , or you will never learn . As we shall see in the next chapter , this last one is especially difficult when it comes to adapting in our own lives .

 

Eight - Adapting and you

 

All because , to quote the psychologists Kahneman and Tversky , he had not ‘ made peace with his losses ’ . Making peace with our losses can be unbearably difficult to do

 

While denial is the process of refusing to acknowledge a mistake , and loss - chasing is the process of causing more damage while trying to hastily erase the mistake , hedonic editing is a subtler process of convincing ourselves that the mistake doesn’t matter .

 

A different psychological process , but with a similar effect on our ability to learn from our mistakes , is simply to reinterpret our failures as successes . We persuade ourselves that what we did was not that bad ; in fact , everything worked out for the best .

 

Doing foolish things in an attempt ‘ to correct the past ’ , like marrying the man whose baby you just aborted , isn’t unusual at all .