🔺A Biological Approach to Finance and Economics

Nature is an extraordinarily great teacher to learn from. However, all to often, it seems humans view themselves as separate and distinct from nature rather than realize we are a part of nature, causing us to not discern its lessons. There are many models from nature and biology that can be applied to finance, although I am simply focusing on self-regulating properties and ecosystems.

Nature has many self-regulating properties that restore balance via negative reinforcing factors similar to purely free-market systems (should they exist). For example, biological diversity within an ecosystem is a sign of health and vitality. Moreover, biological diversity within an ecosystem in many instances leads to a self-regulating system that oscillates towards balance, equilibrium, and stability. Of note, such a state equilibria does not mean it is Gaussian though. Similarly, diversity in business via different cultures, experiences, and ways of thinking creates a degree of stability and equilibrium that oscillates towards the most optimal outcomes.

Another unique aspect of biological diversity within an ecosystem that leads to self-regulation is the importance of Apex predators. As a caveat, within the context of an ecosystem and biological diversity, balance does not necessarily mean equal in number though. For example, typically, Apex predators are outnumbered by their prey. Even so, Apex predators ensure that there is not an overpopulation of their prey and this iteration continues down the hierarchy leading to a sustainable ecosystem. In fact, an indicator of the health and vitality of an ecosystem can be measured by the health of its Apex predators.

This might suggest that the health and vitality of the top 1% in society ensures the sustainability of the 99%, however, that is not the proper conclusion to draw from this example because the dynamics are not the same. Rather, what is important is the co-dependency between Apex predators and lower iterations. If Apex predators die off, the lower iterations will exhaust their food supply leading to collapse. Likewise, if the lower iterations die off, so will the Apex predators. The same dynamic exists between the top 1% and bottom 99% of society. The benefit of viewing financial and economic relationships as an ecosystem are the holistic and dynamic frameworks as opposed to linearity. Speaking of Apex…

Humans are the Apex predators on the planet (besides bacteria). And yet, while nature has its own self-regulating mechanisms, many human systems are driven by unsustainable, positive self-reinforcing factors that ultimately implode on their own accord. These dynamics are similar to placing a candle in a self-contained glass jar. Eventually, the candle burns out once the oxygen is consumed. From an ecosystem perspective, the positive self-reinforcing human systems are in many ways at odds with the self-regulating negative reinforcing factors in nature. The degree of environmental degradation by humans requires a complete shift in the social narrative along with incentive structures to focus on sustainability and restoration.

The primary constant in life is change which is why the following quote from Civilizations Past and Present is important: “In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment.”

Published by Diamond1

I have an extensive background throughout the financial spectrum with high-level experience on the sell-side, high-net worth private banking, portfolio management, international finance, public pensions, VC, PE, and economics. I enjoy working and collaborating with people that I admire and trust.

"Fit Models to Problems, Not Problems to Models"

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