Meta-Strategy in Uncertain Environments (Part I: Warfare)

Perhaps markets are a similar environment to other fields of human endeavor where the success of strategy and planning depends on the strategist’s conception of the environment at the outset.

Every year a new crop of second lieutenants arrives at the Marine Corps Basic School in Quantico, Virginia. They are in Quantico for one purpose: to learn the strategies, tactics, and philosophies most conducive to success in war.

The first and most important part of their training is to help them unlearn what they were taught in college. College has prepared them well for analytic tasks like calculating the ballistic trajectories of mortar shells and understanding the electromagnetic propagation theory of radios.

But the syllabi and grades, the problem sets and essays have also encouraged in them what Nassim Taleb calls “the Soviet-Harvard Delusion”: the idea the world is fundamentally understandable and reasonable and can be mastered through analysis and planning.

At Quantico, we had to destroy this worldview in order to create effective warriors. From day one, there is a relentless focus on several favored themes: “human factors” or behavioral biases, decision making given limited information, game-theoretical logic, and the primacy of tempo over pristine planning. In fields and classrooms, the instructors yell the same lessons again and again: “An 80% solution now is superior to a 100% solution too late.” “Don’t fall in love with your plan; the best laid fall apart after first contact.” “Turn the map around,” meaning, in game theory, look at your position through the enemy’s eyes.

Keys to success in war are non-linear thinking, meta-analysis, and prioritizing pace over planning. Chance, risk, and uncertainty are not inconvenient residuals of poor planning but instead are fundamental elements of the environment that must be exploited in order to achieve victory.

Afghanistan

When I was preparing to deploy to Afghanistan as part of the 2009 troop surge, there was one word on the tongues of all the wise men and journalists: counterinsurgency theory. My fellow Rhodes Scholar, John Nagl, had contributed significantly to a new strategic doctrine for counterinsurgency in the US Army’s 2006 “COIN” manual.

The DoD and Nagl’s roll-out of the manual was perhaps the greatest tactical success since Rommel’s blitzkrieg. The explicit argument in the manual was that the counterinsurgency environment required far less traditional offensive and defensive military operations and far more “stability” operations such as governance and infrastructure development. The implicit argument received by the intelligentsia that we could fight a kinder, gentler form of warfare that reduced all of the things we abhor (violence) and increased all of our laudables (foreign aid, charity, development, diplomacy) quickly took the citadels of Harvard’s Kennedy School and several MSNBC day-time television shows by storm.

The manual was far less effective as an actual war-fighting document. While the manual had groundbreaking interpretations of the historical Malaysian counterinsurgency, the 300-page document only mentioned the word “uncertainty” three times, usually as a side note.

The local Pashtun Maliks (village elders) I met in my first week on the ground in Helmand Province were not exactly persuaded by the COIN manual. In addition to being largely illiterate, and thus unable to fully digest the lessons of the Malaysian counterinsurgency campaign, the Maliks cared very little for USAID contracts and infrastructure development. All they wanted was for us to kill as many of their Taliban and non-Taliban tribal enemies as possible and make sure they and their families were not beheaded at night. Likewise, the Taliban and foreign fighters residing across the Pakistani border did not wave the white flag because we built a haram girls school to win the popular affection of the migrant poppy farmers.

In my command, we eventually used the COIN manual as kindling, and we got on with warfighting. The counterintuitive philosophy taught at Quantico proved a much more perpetual and applicable philosophy. Rooted in Clausewitz, the Quantico training material is certainly not some whimsical, experimental methodology, but the distillation of tacit knowledge from 10,000 years of human history in an environment where the stakes can’t be higher, the incentives for optimal decision making are extreme, and rhetorical window-dressing and marketing in strategy are looked on with little patience.

Unlike the COIN manual, the doctrine begins with the following somewhat abstract assumption:

War is intrinsically unpredictable. At best, we can hope to determine possibilities and probabilities. . . . While we try to reduce these unknowns by gathering information, we must realize that we cannot eliminate them—or even come close. The very nature of war makes certainty impossible; all actions in war will be based on incomplete, inaccurate, or even contradictory information.

Because of this starting assumption, an admission of our irreducible ignorance, the objective of strategy is, as one strategist recently put it, “to learn to operate in chaos, without operating chaotically.” The derivative prescriptions, instincts, and tactics that come from this worldview are strikingly different than those the average undergraduate would employ if left to their own devices.

After Afghanistan, I was invited to teach with the political science faculty at the US Naval Academy. Among other courses, I was asked to teach an elective course for the seniors entitled “The Politics of Irregular Warfare.”

Our assigned readings started with Clausewitz’s On War. One of the book’s most famous dicta is, “If our opponent is to be made to comply with our will, we must place him in a situation which is more oppressive to him than the sacrifice which we demand.” Clausewitz would not have been well received at Harvard’s Kennedy School.

But this simple, pragmatic thought is a far better guide to strategy in a fundamentally unpredictable and case-specific environment like Afghanistan in 2009. The student, however, has to sacrifice the appealing certainty that he can prescribe the specific solution for individual cases in advance.

As an investor now, I wonder if other complex human environments are at all like warfare, where complex but intuitive theories can seize the imagination of large groups of people from time to time and seduce them into the misapplication of case-derived prescriptions or overly idealistic theory. Like Clausewitz’s simple but robust dictum in warfare, perhaps in other environments there are more timeless and proven strategic approaches for operating within chaos without operating chaotically. Next week we will look at the dangers of the Soviet-Harvard Delusion in the markets.