Robustness > Optimization
/The world is obsessed with optimization. There’s nothing wrong with improvement, efficiency, and effectiveness. But many times, optimization goes to far. As with anything, there’s a point where the costs of optimization exceed the benefits.
For example, corporations optimize their capital structure with substantial debt, but end up in bankruptcy when a recession hits. Investors optimize their portfolios through leverage and mean-variance analysis, but forget the inherent flaws embedded in the data and assumptions. Even individuals who optimize their health end up wasting time and money chasing useless biomarkers and other hacks.
At some point, optimization breaks down. Optimization often relies on the assumption of near perfect knowledge of the future. That’s why those optimized companies go bankrupt. They planned on one future but got another. Optimization is fragile. It’s great if the world unfolds just as you expected. It’s awful in every other scenario.
Since we don’t know the future, robustness, not optimization, should be the goal.
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