Good business concepts follow the same principles as the art of good science; it´s about finding the correct entry level to a problem or the right level of simplicity.
The evolution of chemistry might serve as a good example to demonstrate this point. The Greeks had the right idea of atoms as some of the smallest elements from which all matter can be explained through combinations. However their choice of atoms – earth, water, air, fire and ether – were obviously inaccurate. Based on this theory, alchemists tried mixing all sorts of materials until the late 19th century. They might have found gun powder, by chance, but they were never able to find gold. The Bohr model changed it all, things began to click and fall into place. A true science was born. The complex world could be explained by combining a small and manageable first set of elements.
While the Greeks were too simple, the alchemists were too complex. Bohr was just right. Complex and functioning systems are made up of simple basic elements. There are three indications to having found the right entry level for complex systems:
- Simplicity: First elements cannot be complicated or complex
- Combinatory power: All observable phenomena must be explainable through combinations of the first elements. In particular, correct first elements will explain phenomena not even thought about at the time of discover of the elements.
- Beauty: The system must be beautiful and striking a chord of beauty
This is certainly true for the observed nature but it is also true for the man-made financial system. Therefore the key to solving questions in the complex financial system lies in finding the right level of simplicity or the basic building blocks. Finding these building blocks was the theme of the PhD thesis of Willi Brammertz (1990).
Although the first elements did not change since the early 90´s, the quest for new combinatory possibilities continues. The first elements were able to address all the changes of the last 25 years, such as new analytics and new products. Ariadne is the youngest initiative in this chain, where we not only refine the purity of the original idea but combine it with the newest technology.
The concept of the algorithmic representation for financial contracts, which is the core of the idea, is an Open Source project called ACTUS (www.projectactus.org). Ariadne helps you by making the power of ACTUS available at your fingertips.