Doing by Not Doing - The Wu-Wei Principle

Wu-wei is an important concept in Taoism and literally means non-action or without control. It is included in the paradox of wei wu wei: act without action.

In Laozi's sense the action is seeking to "forget" knowledge - and this can only work like Wittgenstein's ladder: to go beyond you must throw away the ladder you have climbed up.

Be patient

My simple (western) interpretation is: do as little as possible and do when the timing is right (a "natural" flow is working for you, but you need to follow it) - be patient, but awake.

The metaphor of fuzzy control

Simplifying, traditional controllers can become wiggly in certain situations.  Fuzzy control systems are "smoothing".

If you drive your car through a turn you do not change directions in little steps approaching a next target point. You drive like a fuzzy control system avoiding unnecessary changes and even in unexpected events, you try to avoid volatile actions. It is kind of coolness by experience.

Wu-wei in the small.

Try not. Do?

A seller always want to be the first. And yes sometimes you need to prototype to get insight. Especially when you transfer solutions from other fields. UnRisk prototyped Adaptive Integration, FEM and streamline diffusion, ...

But there are some examples in the large, where it was wise to not try.

Were UnRisk was not the first:

Libor Market Models - it made sense to have a deep look into the maths first - negative Eigenvalues in practice

Normally Distributed Short Rate Models - we did not kill them. Why? See Black vs Bachelier revisited

Complex Credit Derivatives - here we even rejected bending the reality. And it turned out that the most complex instruments were also the toxic ones.

VaR - it was widely misunderstood and maybe even used to hide risk. We knew it requires multi-method and across many risk-factors approaches. And did it when it was absolutely clear.

xVA - with counter party exposure modeling, collateral management and central clearing requirements with impact on the whole bank it introduces an unprecedented complexity into the valuation space. So complex that the computational engines do not only need to be inherently parallel, but optimize data and valuations streams.

And xVA may be the reference for being lucky when wu-wei.

We will present a first release end of 2014 (for distinguished partners, who work very close with us challenging it through different lenses: auditor, financial advisor, SaaS risk management provider, bank)

This post has been inspired by W. Singerland's post in Edge