Collapse of confidence, value, meaning, honour, options and patience

Quantum Wampum Essential to Navigating Ragnarok (Part #2)

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Varieties of intangible collapse: It is curious to note the disarray in recognition of "collapse" with respect to intangibles. This is variously acknowledged and deplored in the case of:

• business confidence
• increasing unbelief and challenges to faith deplored by religions
• democratic deficit deplored by politicians
• erosion of conventional meaning, especially among at the young
• reframing of ethics and morality
• limited range of strategic options considered viable
• impatience at the inadequacies of governance and the inability to deliver promised solutions
• confidence in the future, especially in the case of the young
• confidence in the expertise of science
• cultivation of lies, as with respect to money (Peter Koenig, 30 Lies About Money: liberating your life, liberating your money, 2003)

Figures of authority -- including politicians, financiers, generals, executives, directors, priests, lawyers and scientists -- are increasingly perceived as unbelievable and untrustworthy. They have lost all capacity to prove that they are trustworthy in systemic terms. Election pledges are now typically honoured only in the breach.

These trends can be configured together as explored separately (Convergence of 30 Disabling Global Trends: mapping the social climate change engendering a perfect storm, 2012; Mind Map of Global Civilizational Collapse: why nothing is happening in response to global challenges, 2011).

Such intangibles, when acknowledged, are typically the focus of ad hoc surveys in support of particular agendas -- and in particular countries or regions. Through ratings, those in power in government may be especially attentive to their "popularity" -- as an indication of confidence. This can be contrasted with the worldwide survey of the (intangible) perceptions of corruption -- itself fundamentally flawed by failure to include the Vatican .

Any such collapse may be reframed by calls to imagine the situation otherwise. In the case of business this may explicitly take the form of overcoming outdated, traditional company values, as articulated by Tom Peters (Re-Imagine! Business Excellence in a Disruptive Age, 2003). In the case of religion, one such call is by Sallie McFague (Models of God: theology for an ecological, nuclear age, 1987)

Absence of simulation: It is extraordinary to note the reluctance to simulate either the system in its current dynamically unstable condition, or in the light of probable outcomes of recommended policy changes, or with respect to possible alternatives -- and the possibility of any transition. To the extent that such simulation is done through a variety of "economic models", their outputs are primarily designed for specialists -- who may themselves be challenged to comprehend them. Policy-makers may well be indifferent to simulations for other reasons (Graham Turner, A Comparison of the Limits to Growth with Thirty Years of Reality, 2007).

With respect to intangibles, it could be said that trust is further undermined through systematically avoiding simulation of confidence dynamics in response to proposed initiatives.

There is no sense in which the daily pronouncements of experts and politicians on any matter can be represented in a comprehensible manner, inviting changes in parameters by anyone -- to test understanding of constraints in response to seemingly reasonable suggestions. This might be a form of "crowdtesting" in contrast with "crowdsourcing" -- with the possibility that unexpected discoveries might be submitted for wider appreciation -- as with "crowdsourced testing", open-source intelligence, open-source software development, and Sodaplay. Related arguments can be made with respect to disaster (Enabling Collective Intelligence in Response to Emergencies, 2010).

There is no question of designing such simulations for ready comprehension by policy-makers, and presentation through the media, in order to elicit and sustain public confidence. It is assumed that the latter can be achieved by using those in authority to "talk up" new proposals -- even though confidence in such authorities has been totally undermined by their declarations and actions in relation to past events. These points have been the focus of separate discussion (Uncritical Strategic Dependence on Little-known Metrics: the Gaussian Copula, the Kaya Identity, and what else? 2009; Simulation Possibilities for Complementary Currencies, 2005).

Time value decay: Ragnarok as expiration date of strategic options for the future? It is curious to note the importance attached within the financial markets to terms which have similar significance with respect to governance of society. However those trading in these markets are far more assiduous in simulating their implications -- to which they are much more attentive.

Some of the terms common to both domains are as indicated below.

• Those relating to the financial markets could be enhanced from the Financial Times Lexicon and Investopedia. The latter was initially a financial dictionary, and is now a resource for investing education, personal finance, market analysis and free trading simulators.
• There does not appear to be any equivalent resource relating to governance or strategy in general, although resources tend to be available for military, corporate and nonprofit governance -- and more generally for the challenges of "investing" in social change strategies.

Correspondence of terms ?
Terms	Investment in financial markets	Investment in strategic governance
Future	Futures market	Strategies / plans for the future
Options	Trading options	Strategic options and alternatives
Value	Monetary value	Embodying psychosocial values
Timing	Relative to option expiration	Relative to viable crisis response
Risk	Financial risk (and reputation implications)	Strategic risk (and reputation implications)

As implied above, there is a degree of concern with "outdated" values and their renewal. Questions of interest include:

• What might be learned from the futures market of relevance to governance -- especially in the light of the catastrophe in which both were so recently complicit?
• How is the value of strategic options recognized with respect to crises which demand attention -- and for which delay is readily claimed to be "not an option"?
• To what extent is strategic governance "running out of options"?

The challenge could be reframed by recognizing the "planetary boundaries" with which governance is confronted (Johan Rockstrom and Anders Wijkman, Bankrupting Nature: denying our planetary boundaries, 2013). Overrunning these boundaries could be usefully compared with the "expiration" of any strategic option.

Basically, an option contract is a bet that a market will move in a certain direction within a certain amount of time. The major feature of options trading on the futures market is that the "extrinsic value" of the option decays over time. Known as time decay (time-value decay, or theta), this rate of value erosion accelerates as the expiration date approaches.

An option's extrinsic value is therefore recognized as eroding into expiration. Such options are therefore wasting assets. Part of the value of an option is the amount of time left until expiration. As the option gets closer and closer to expiration, the value of the option erodes to "intrinsic value". This is the value in the money itself. In the case of out of the money options, the value of the option decays to zero at expiration. Options closer to their expiration have less premium and decay at the fastest rate. They will also be the most volatile. Such thinking is of relevance to the value of strategic options in general.

The sensitivity of the value of the derivative to the passage of time -- the time decay -- is measured by theta. The total theta for a portfolio of options can be determined by summing the thetas for each individual position. An equivalent insight is required for the social change strategies of governance.

Indication of accelerating time decay prior to expiration of any strategic option? (adapted from standard graphs of option time decay in the financial markets)

Metaphors and myths: With respect to use of "Ragnarok" in this argument, it is appropriate to note that Stafford (a leading equity options market-maker) launched Ragnarok Systems -- described as a proprietary state-of-the-art trading platform to host cutting edge trading and financial services applications.

With respect to the unconscious implications of Ragnarok, an earlier paper on Enhancing the Quality of Knowing through Integration of East-West Metaphors (2000) noted:

The origins of the Finnish success in information technology can be found, according to Newsweek (May 1999), in the Kalevala, the national epic of Finland. The article focused on Sampo, a virtual machine accumulating wisdom and wealth hundreds of years before Bill Gates. In Jyrki Pöysä's study Virtual Kalevala - global or national?, the Kalevala, is seen in the context of globalizing information technology. Reinforcing this perception, the Finnish Presidency of the European Commission, was introduced by a speech on the New Dimensions of Learning in the Information Society (July 1999) -- referring first to the influential role of the Kalevala.

In a similar vein, Wired (September 1999) comments on the exceptional anti-authoritarian sentiment, that is the core of Nokia's success, as deriving from Antti Rokka, the hero of Väinö Linna's The Unknown Soldier. The hero of the Finnish information society is a person with a marked aversion towards all hierarchies. Asian cultures might do well to explore the significance of their own epics, such as the Mahabharata, for knowledge management.

This potential for Asian cultures has been extensively explored by Susantha Goonatilake (Toward a Global Science: mining civilizational knowledge, 1999)

With respect to the "wampum" thread of this argument, The Wall Street Journal notes the existence of a virtual stock exchange game entitled Wampum (Market Watch, 2013). There is a curious complex of associations between Native American gaming, centered on Indian reservations or other tribal land in the USA, and the significance those same tribes traditionally attach to wampum (Barbara Beaucar, From Furs and Wampum to Slot Machines and Megadollars, Social Education, 67, 2003; Robert Dvorchak, Without Wampum, Indians Bank on Blackjack: Gambling: Call it the 'Revenge of the Pequots' as tribal coffers are flush with proceeds from the casino, Los Angeles Times, 3 January 1993).

The comparison between options trading and political dynamics can of course be usefully framed by "horse trading" as a descriptor.

"The Greeks": As discussed separately (Gamma as change in the rate of change of value, 2013), in a period of the severest financial confidence in the country of its origin, the use of the term gamma in mathematical finance derives ironically from "the Greeks". The name is used because the most common of these sensitivities are often denoted by Greek letters. These are the quantities representing the sensitivities of the price of derivatives to a change in underlying parameters on which the value of an instrument or portfolio of financial instruments is dependent.

The range, precision and subtlety of such little known measures is extraordinary, by comparison with the fuzzy inadequacies and oversimplifications in the case of debate regarding change in psychosocial systems. Wikipedia offers entries on:

1. First-order Greeks
   1. Delta: measures the rate of change of option value with respect to changes in the underlying asset's price.
   2. Vega: measures sensitivity to volatility. It is the derivative of the option value with respect to the volatility of the underlying asset.
   3. Theta: measures the sensitivity of the value of the derivative to the passage of time: the "time decay."
   4. Rho: measures sensitivity to the interest rate: it is the derivative of the option value with respect to the risk free interest rate (for the relevant outstanding term)
   5. Lambda (Omega): is the percentage change in option value per percentage change in the underlying price, a measure of leverage, sometimes called gearing.
2. Second-order Greeks
   1. Gamma: measures the rate of change in the delta with respect to changes in the underlying price.
   2. Vanna: (or DvegaDspot and DdeltaDvol): is a second order derivative of the option value, once to the underlying spot price and once to volatility.
   3. Vomma (Volga, Vega Convexity, Vega gamma or dTau/dVol) measures second order sensitivity to volatility. It is the second derivative of the option value with respect to the volatility, or, stated another way, vomma measures the rate of change to vega as volatility changes.
   4. Charm (or delta decay, or DdeltaDtime): easures the instantaneous rate of change of delta over the passage of time.
   5. DvegaDtime: measures the rate of change in the vega with respect to the passage of time. It is the second derivative of the value function; once to volatility and once to time.
   6. Vera (or Rhova): measures the rate of change in rho with respect to volatility. It is the second derivative of the value function; once to volatility and once to interest rate.
3. Third-order Greeks
   • Color (gamma decay or DgammaDtime): measures the rate of change of gamma over the passage of time
   • Speed (or the gamma of the gamma or DgammaDspot): measures the rate of change in Gamma with respect to changes in the underlying price.
   • Ultima (or DvommaDvol): measures the sensitivity of the option vomma with respect to change in volatility.
   • Zomma (or DgammaDvol): measures the rate of change of gamma with respect to changes in volatility.

Risk and surprise: Collectively these have also been called the risk sensitivities, risk measures, or hedge parameters. Together "the Greeks" are vital tools in risk management. Ironically again, "the Greeks" (including gamma), have been fundamental to the development of the continuing financial crisis -- especially given the manner in which these were based on the dubious packaging and marketing of financial derivatives.

A highly controversial study by a former risk manager, Nassim Nicholas Taleb (Antifragile: how to live in a world we don't understand, 2012), has addressed the conditions which are a source of strategic surprise -- developing an argument made in earlier work (The Black Swan: the impact of the highly improbable, 2007). Considerable attention is given to the management of convexity (Black Swans and Antifragility: a vivid reconceptualization of risk and resilience, NPQ: nonprofit quarterly, 20 March 2013).

Taleb argues for recognition of antifragility, in contrast to fragility, where high-impact events or shocks can be beneficial -- like Ragnarok? He coined the term because he considered that existing words used to describe the opposite of "fragility," such as "robustness," were inaccurate. Antifragility goes beyond robustness; it means that something does not merely withstand a shock but actually improves because of it.

The recognition of the importance of gamma with respect to one fundamental form of change raises valuable questions as to how it -- together with the other "Greeks" -- could usefully be applied to other forms of change in value, especially those involving a degree of risk. The criticism of Taleb's thesis -- as one of the few who warned of the financial crisis -- should be compared with the perspective of others who did not, as an indication of that dynamic with respect to more intangible values (Jared Woodard, Why Taleb is wrong about markets and uncertainty, Condor Options, 26 Novemeber 2012).

Whether for the collective or the individual -- is such an approach of relevance to the "psychic economy" noted above? Especially intriguing is the sense in which Ragnarok can be recognized as an ultimate form of moral bankruptcy -- taking into consideration the broader sense of value with which wampum has been held to be associated (From Quantitative Easing (QE) to Moral Easing (ME): a stimulus package to avert moral bankruptcy? 2010). Has the focus on the derivatives of finance been a poorly recognized distraction, implicit in other uses of the term, as separately argued (Vigorous Application of Derivative Thinking to Derivative Problems, 2013)?

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