compounding errors

I think we all know that not all errors are created equal. That said. Some errors are sneaky. Some errors are simply annoying in the moment, passed over as ‘it is what it is’ and, yet, they lurk gaining velocity as times passes only to rear its ugly head years later.

Yeah.

I know.

I have written about persistent setbacks and how not all setbacks are created equal. Compounding errors are different.

I have written a number of times to suggest Life offers you gobs of opportunities and almost every moment, while important, is simply replaced by more other significant moments. And I still stand by that. Yet. There is still such a thing as a compounding error. Well. I think there is but if you google compounding error you don’t get diddleysquat except in reference to pharmacies. If you dig a little deeper, the google machine will suggest compounding errors is “error propagation” and associated with the propagation of uncertainty.

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Error propagation (or propagation of uncertainty) is what happens to measurement errors when you use those uncertain measurements to calculate something else. … When you use uncertain measurements to calculate something else, they propagate (grow much more quickly than the sum of the individual errors).

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While all of this is interesting it isn’t what I am talking about. Compounding errors, to me, fall into the category of “additive and multiplicative damage”.
Some errors we make are transactional which simply incur an additive damage (if left alone). Transactional errors are fixable and tend to be isolated events which incur little future value damage.

Multiplicative errors are unfixable and their cost in terms of damage occurs in an exponential fashion.

** note: the rate of the multiplication has no universal norm and is indicative of the universe context in which it resides

Additive errors are painful, but don’t really create structural damage (unless, once again, you do not address and the splinter festers)

Multiplicative errors seem less painful in the moment, but create structural damage so the true cost is in its future value.

For example, here is a compounding multiplicative error:

When I was 27, I shifted jobs. At the time I cashed out a small IRA investment of maybe $3,500. Small decision in the scheme of a quickly rising career.

5+ years later, due to an error I made on my easy form income tax return, I was paying the government $12,500 (that’s the penalty for making an honest error). On the face of it this is a $9,000+ (taxes came out of that 3500 as they were reported as income). Painful, but, seemingly of little structural financial personal impact.

But this is a compounding multiplicative error.

That $3500 then, using the Dow Jones average, would have about a $370,000 value today.

If I had invested just half that $12,500 in stocks (I sold some stock to pay it) in 1994, using the Dow Jones average, that would be over $450,000.

Heck. $25,000 in stocks in 1996 would have a value of $1.4 million today.

This was a painful lesson from which the consequences of the error didn’t really matter until, well, it did.

That is a compound multiplicative error.

The type that lurks, not really mattering, until all of a sudden things shift and it steps forward.

Yes.

Many of these errors remain in the background. They are simply lost opportunities within a world usually offering a healthy diet of opportunities to you. But lurk they do. In fact, to use a Taleb term, they are a fragile aspect of your life that lurk within a larger complexity of your life. It is only when that complexity gets rearranged in a way that the fragility gets exposed that, well, the compounding error screws you.

Maybe another way to think about compounding errors is to make sure you think about Life as consisting of multiple strands – maybe like Life, career path, relationships, living responsibilities (what underpins, materially, your Life), financial, etc.

For example. You can move 4 times in the same city, all of which cost money, demand some shedding of items (call those lost investments) and demand some adding back on items (filling space or refilling what one gave up at some point). This can be as simple as owning a barbeque, giving it away when you move, and then buying another when you get somewhere else. Sounds little, but compounding.

But the larger point, within the multiple strand theory, is all the while your career could be progressing, you are gaining some valuable Life experiences within the moves and you add some valuable relationships.

All that said.

I would suggest compounding errors are kind of like boomerangs. You see them when they happen. They seem aggravating, some waste, but not major. Just a stick of wood you toss away in frustration. And you move on. It is only later on when you either reflect, or have the need, the boomerang comes back and smacks you with the consequences & repercussions.

Philosophically, I could suggest compounding errors are a reflection of lack of understanding the finite and the infinite and complexity. You can even understand that everything is connected with everything and, yet, still see the parts as isolated from the whole. But they are not. and the inverse is true. As Ackoff pointed out “you rarely improve an organization as a whole by improving the performance of one of its parts.” What this means, as a corollary, degradation of one part is likely to degrade the whole.

Anyway.

Life often appears to be a luxury of infiniteness even though parts of Life seem very very finite. As we face a seemingly endless array of to-do’s, tasks, work assignments, responsibilities and whatever else pops up in the everyday life of what happens – all compounded by the additional random unforeseen stuff that inevitably gets layered on top of what you expected and planned for – we all start making choices trapped in the wretched hollow in-between finite and infinite.

I will admit. While I was good at managing this in business, with businesses and doing business, I was not good at this with myself. My point on that, going back to multiple strands in life, is that someone can be very very good at some strands and very very bad at others. But because everything is connected with everything that formula is fraught with peril and compounding errors can seamlessly weave their way into the strands of life without anyone really noticing – until they demand being noticed.

And that is where what you learn from business relates to Life. By the time an error is noticeable, it is typically too late. I am not suggesting they cannot be resolved to stop their compounding, but compounding errors, by the time they become noticeable, have created irretrievable losses.

In the end.

As I have pointed out a number of times, Life does not come with a “how to” manual. For the most part we figure it out, by ourselves, as we go. Yeah. It is possible someone could suggest there are gobs of resources available to assist but the truth is many compounding errors are oversights, not ignorance, and many of the best resources cost money so while offering multiplicative future value have a present cost barrier.

So, ponder. Ponder because compounding errors are real and have very real consequences.