The Wall street crisis makes me wonder about the question of foresight. Could we have seen this coming? One thing is clear - having access to some of the most detailed information and sophisticated analysis, such as what Bernanke, Paulson and in turn President Bush have, certainly does not seem to help. This of course assumes that they were not trying to hide anything, the truth of which we will only know after some time. Someone is most likely to demonstrate, retrospectively, that they had all the information they needed, or that they did not look for something they should have. We do know that these people have access to the best information sources, that they also have supposedly honed their skills professionally to understand the behavior and dynamics of such complex entities as markets, industries and economies. Perhaps they do not have the required cognitive complexity. This is particularly interesting, since the nation is also considering putting someone in a position where she might have to comprehend such complexity, and has not demonstrated adequately the cognitive complexity to do so. So, one important question that springs to mind, is whether the collective cognitive capabilities of these decision making bodies is somehow undermined by the people who lead them.

Well then, even if a few people did not see it coming, the market is supposed to have worked. After all, according to theories of the market, the stock prices of all these about to fail enterprises should have reflected the fact that they were headed to failure. If the market had failed to predict successfully in the case of just one or two cases, one could have understood the anomaly. However, in this case, the market sytematically failed to tell us what was coming. It would be interesting to explore if there were prediction markets somewhere, which did indeed foresee this coming. Now, in the case of the market, there is far more diversity in the number of people involved, than in the case of the individual enterprises, or the federal agencies, so the likelihood of someone trying to deliberately misinform should be considerably lesser. One therefore has to wonder about what the underlying causes of the failure of the market mechanism might be.

I can even understand the majority of the people participating the market not having accurate information. After all they have to use second hand information, whatever the institutions put out, supplemented of course with indirect information. We know people use other sources including heuristics based on their own experience to make investment decisions. However, there are people within the institutions, who are tasked with monitoring the health of their business and ensuring its success. In institution after institution, in all the largest and most venerable names in the industry, was there no indication of what was coming? Or, was there a deliberate attempt to misinform?

Systems as large and complex as the global economy are indeed difficult to completely comprehend. We have heard how, the temporary resolution of this crisis with the rescue package, is not the end of the problem. There are other consequential effects we cannot foresee. Further, these complex systems can often do unpredictable things. Perhaps, that is what happened here, even though in this case I do not completely believe that proposition. Surprise in such complex systems is to be expected. That is why, those of us who need to survive and thrive in these times of ever-growing complexity, have no choice but to make our systems agile, and architect them to be simple and flexible enough to turn around rapidly.

But, what failed here I believe, is a refusal to see things as they were, in addition perhaps to a desire to mislead. The incentives to mislead in certain cases are very significant as we all know. Everyone in positions of responsibility could indeed see what was coming, they just refused to acknowledge their reality. It was the individual and cognitive pathologies of these entities that led us to this mess.

Fixing those is the first step to good foresight. No amount of information or analysis can correct the consequences of cognitive blinders. That is no easy challenge, for you cannot throw technology or money at it. We need to ask deeper questions all across the board. If people who have the best information cannot foresee well, but can find someone to bail them out of a crisis, how well do we think the ordinary person on main street, be able to make good decisions, and who will bail them out should they find themselves in a similar crisis?