One of my favourite sections of the book was Harford’s discussion of accidents. Most of the problems Harford examines in the book are complex and “loosely coupled”, which allows experimentation with failure. But what if the system is tightly coupled, meaning that failures threaten the survival of the entire system? This concept reminded me of work by Robert May, which undermined the belief that increased network complexity led to stability.
The concept of “normal accidents”, taken from a book of that title by Charles Perrow, is compelling. If a system is complex, things will go wrong. Safety measures that increase complexity can increase the potential for problems. As such, the question changes from “how do we stop accidents” to how do we mitigate their damage when they inevitably occur? This takes us to the concept of decoupling. When applied to the financial system, can financial institutions be decoupled from the broader system so that we can let them fail?
(Emphasis mine.) via Harford’s Adapt: Why Success Always Starts with Failure.