Embrace The Complexity

Lynne Kiesling

Russ Roberts has an absolutely wonderful essay at Café Hayek. Russ uses a recent FedEx transaction, and how sure he was that his package would arrive unmolested and on time, as a starting point:

My lack of worry at FedEx is different. It can’t be trust. There are too many people touching my package who I will never see. How can I trust them? I know nothing about them. The woman behind the counter seemed like a decent enough soul. I trusted her somewhat. But I don’t even think that’s the right word my feelings about her. But it’s certainly the wrong word to describe her co-workers who brought my package safely to St. Louis. I can’t say I trusted them. I knew nothing about them.

Faith? Seems too open-ended or something. Faith comes from having used FedEx before and knowing that they always get the job done. There’s a little of that. But I wasn’t even worried the first time I used FedEx.

Confidence seems like the right word. Confidence born from an understanding of how the division of labor works in a modern economy. What Hayek called the extended order of human cooperation.

The essay is too rich to excerpt well, so please read the whole thing. The important point is that in complex human interactions, we develop different orders to help us structure the complex world given our physical and cognitive characteristics. A relationship and method of transacting that works for getting the kid next door to mow your lawn is unlikely to work for getting a parcel from Washington to St. Louis. And more importantly (I think), that ability to create different types of extended order doesn’t only enable us to manage complexity and survive notwithstanding the complexity: it enables us to use complexity to our advantage.

This ability to use complexity to our advantage is one of the hallmark characteristics of two very important market institutions: prices, and long-distance, impersonal exchange. Diffuse, personal knowledge is a dimension of complexity, and we take advantage of it through the price system because we need only know the price facing us individually in order to make the decision that’s right for us; we need not know the preferences or costs that went in to the process of the price getting to that point. And with impersonal exchange we get to leverage the heterogeneity of both our preferences and our costs, as well as the heterogeneity of opportunism and entrepreneurship, to exchange goods and services in ways that we could not if we limited ourselves to exchange through a more intimate, personal order.

One of the most fruitful areas for entrepreneurship (both commercial and institutional), and for research, is in investigating how we can use complexity to our advantage and create new ways of ordering our lives that use those advantages, instead of just thinking that we have to cope with complexity and to control and manage it. Instead, embrace the complexity.

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