It’s only a model

Regulation provides a static solution for a dynamic problem

If you argue that different sets of rules often aim at governing situations that are part of the same system, you will agree that these sets of rules will need to be adaptive to one another in order to be effective. If rules are developed and maintained in isolation, there is a real-life risk of them leading to unintended consequences.

Whether it’s by disregarding context, adaptiveness or by ignoring the dynamic nature of our lives, most regulation does not respect the complexity of the world we live in. Maybe it is because of a lack of better alternatives, but the fact is that by relying solely on regulation, we accept relying on a simple model of reality rather than reality itself.

Suppose you are a regulator responsible for making sure consumers of certain financial services are optimally protected. How do you go about that?

You can choose to create rules to oblige providers of these services to make sure they understand the needs of the client, make sure the client understands the service, provide an independent advice whether the client needs the service or not and monitor if the service is meeting the client’s needs once in effect.

In isolation, these rules sound like very effective ways to make sure the client is protected. However, in context the picture might change. For example, if you consider the cost of complying to these rules for the company providing the service, you will understand that the business case for this product will change.

This might lead to the company incurring higher cost to the client, providing the product only to clients where the volume of business is high enough to justify the cost, or to stop providing the product altogether.

Rules made for a simplified version of reality can be truly frustrating for professionals that understand reality (better than rule makers). If a rule only provides clarity on what is allowed or not in a general sense, it can prove to be very hard to apply it to a specific context. And if a rule is clearly harmful in a specific situation, effectively violating its own spirit, it doesn’t help with doing the right thing.

It is probably fair to wonder if it is even possible to make rules for reality. Maybe we will have to accept that we are governed by a model, and that the best thing to do is to make the model as effective as possible. If we make sure all rule-makers work together and update the model regularly, maybe it will do half a decent job eventually.

Why do we keep relying on static solutions for dynamic problems?


However, it’s also fair to wonder why we keep relying on static solutions for problems that are dynamic, adaptive and therefore highly complex. Do we spend enough effort on looking for different ways to make sure we do the right thing or should we at least partly shift our attention away from our obsession with regulation? True, there are technological advances in the area of artificial intelligence that can help us figure out what’s allowed and what’s not in a dynamic manner, but let’s not bet on one horse.

The aim of this blog is to investigate alternatives that might supplement and/or partly replace regulation. Hopefully, this would provide a more human approach to helping each other be good.


  • The title of this post was inspired by Monty Python’s Camelot, see video





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