Double Whammy Paradox (DWP)
Let me better explain what I have not said yet, by giving an example of the DWP, which will make the theoretical definition easier to grasp later.
Good schools, good house: Most of us who have hunted for a house in the US know that the prices are dependent on, among other things, how good the schools in the area are, and how good the house is, in terms of age, size, structure etc. The better the schools and the better the house, the higher the price. Now here is the DWP: if one is buying a long term house, one would want a good school area and a good house (both factors pushing the price up). If one was looking for a short term abode, it would be ok to buy a non-dream house in a not-so-good school area, both of which make the house cheaper. The two factors are working in the same direction, versus opposing each other, thus creating a wider gap in prices and, in some sense, a state of disequilibrium.
Solar-thermal power: On the other hand, consider a solar-thermal power plant, which indirectly produces electricity from sunlight, by concentrating the light to produce heat which drives a steam turbine. It works best when it’s the hottest, and generally, when the demand for electricity would be the highest too (air conditioners). This is an inverse DWP. The two forces are working against each other (complementary), to achieve some state of equilibrium or at least mitigate the impact by partially canceling each other. To better appreciate this, compare it with solar power which directly converts light to electricity using photovoltaic cells, and doesn’t benefit from this complementarity.
Now let me try to theoretically define the DWP. DWP occurs when two (or more?) factors affect a defined objective/goal in a manner that reinforces the net effect of each factor, as opposed to canceling or reducing it. More generically, it is a situation in which the goal is made less achievable by the supplementary nature of the participating forces.
It is possible that the DWP arises due to the particular selection of the goal and the factors from among a larger set of objectives and factors governing a situation, however, it definitely seems that at the (micro or macro) level of the situation, each of them is relevant and important in its own way. There could be several other names for this construct, such as Disequilibria Forces, Tradeoffs in Goal Achievement, Opposing Constructs in Universal Processes etc. But for the lack of a less abstract sounding name, I prefer DWP. I will elaborate with several examples below.
Statistics: The more pinpointed the answer (narrower range of possible outcomes) from a data model, the lesser is the probability of that answer being accurate. For those not familiar with statistics, let me elaborate. A statistical weather forecast would say, for example, that the temperature will be 75F plus or minus 3F, with a chance (probability) of 80%. In other words, there is an 80% chance that the temperature will be between 72 and 78F. Now if you want to get a more accurate forecast (90% chance), the range would increase (70 to 80F). So as you “zoom in” to get a more reliable answer, the uncertainty of the “actual” answer increases. Contrast this with zooming in a digital map, where the more you magnify the more you can pinpoint the area. Contrast a map zoom-in with a fractal zoom-in, to appreciate a map.
Bond convexity: This is an example of inverse DWP. As the interest rate increases, the price of a bond decreases, and vice versa. However, the convexity of a bond generally works in favor of increasing the price more when rates are dropping, and decreasing the price less when rates are going up. It is a second order effect, so the convexity impact is not enough to keep the prices of a bond in “equilibrium” but at least it doesn’t accelerate the upside and downside both (which is what a margin account does, next).
Pro-cyclicality and margin accounts: A margin account lets you borrow some percentage of the existing value of your portfolio, in effect creating leverage. This leverage is a DWP. When the portfolio value is increasing, it in turn increases your buying power which lets you buy more (pro cyclical). However, a crushing reversal occurs when the markets head south. A decrease in value for a leveraged portfolio not only forces the investor to return the borrowed money (margin calls), but also creates a downward spiral because the money is typically returned by selling part of the portfolio in a down market which further decreases the portfolio value causing more margin calls. A similar problem occurs at a macroeconomic scale where a destruction in wealth in a consumer led economy causes the consumer to increase personal savings, which in turn exacerbates the economic problem. Another similar artifact: capital reserve ratios in banks are supposed to be increased when the going gets tough. This further decreases money when money is already tight.
Other examples include the tradeoff between features in a system and its complexity, both increasing together (except maybe the iPod :). The more generalized (abstract) a system, the more complex it is but the abstraction allows it to better serve a wider range of requirements. Moreover, as a system grows more interconnected and complex, it typically amplifies small perturbations which can cause snowballing results, unless it is a good “fault tolerant” design. Nature has its own snowballing in the Chaos theory. Contrast that with the ability (possibleness) to make macro level trends. At the micro level people are unique. However, at the macro level, one can make some reasonable predictions about how collections of people will act, making it an inverse DWP. The uncertainty of macro level behavior could have increased exponentially as the collection grew, but it doesn't. Otherwise, imagine the world of Marketing, Economics and Behavioral Finance to name a few. Another example is the typical contradiction in tactical and strategic objectives. Large projects need more analysis, time and effort, which is inherently unsuitable for a shorter time-to-market requirements. On a different note, one can increasingly compact and make context-sensitive the message sent between two points, however, that will also increase the information and power needed on the two ends to process the message. For example, this article would have been a lot longer if I had to describe each hyperlink in it.
Other cases, from the mundane to the not so mundane: the better the grip, the more the friction that dampens the presumably moving object that needs the grip (think car tires); the drier the air in an airplane (good for preventing plane rust) the worse is the air for the passengers in the plane; dust typically collects in areas of a room where the vacuum cleaner cannot easily reach (making the Roomba an exception); the better the access time in an indexed collection, the longer it takes to add new objects to that collection; the greater the return (alpha) needed from a portfolio, the more Active risk one must take. My four year old gave me some insight into the human equivalent of the classic risk-return issue - risk is to Alpha what craziness is to success, both risk and craziness being deviations from the norm.
An interesting thing to note is that most natural constructs are inverse DWP, that is they are driven toward equilibrium by the opposing forces. The DWPs are generally man made. This would make sense, because most of the natural DWP would presumably die an evolutionary death. A baby’s faculties generally develop proportionately so that, for example, they cannot walk or climb until their mental state is somewhat able to judge what in their newly accessible region is dangerous for them (there are always exceptions). Extending that idea to a larger scale, and I am making a leap here, one can suggest that as a race, we wont be able to achieve quantum jumps in our technological, civil, economic and other areas until our collective “maturity” increases proportionately. Maybe civilization will develop similar to how a multi cellular organism develops, with different collections of resources specializing in certain areas, but not separated along physical boundaries, all working toward a collective Utopian vision for the planet. How might that happen? Think about the Maslow's hierarchy of needs for the human race. Once our collective basic needs are met (basic resources, global peace), we are free to advance to the next level (global well being). It is possible that the resources freed up from having to fight wars and defend boundaries, could one day feed the entire planet, eradicate poverty, and lead to major advancements in biotechnology and space exploration/colonization and more. The "planetary DNA" would be our laws and principles that govern nature and human activities. An occasional equivalent of a "mutation" (theory of relativity) or man-made "splicing" (experiments at CERN, genetic engineering) may provide that quantum jump in our collective consciousness, which takes us to the next level. And, like the baby, maybe inter-planetary travel will be possible only when we are able to ‘dig’ ourselves out of a worm-hole. But I am getting ahead of the times. That is another story.
The aim here is to describe the idea of DWP (suggestions for alternate names are welcome). The aim is not, yet, to solve the problems, but to gain a better understanding of the nature of the beast. I am also looking forward to examples from you.
Disclaimer: in the interests of brevity and simplicity, I have taken a simplified view of processes and constructs in the examples above. The idea is to get the point across and to avoid getting bogged down in diversionary details.
