Energy is critical to national security, economic growth, the environment and individuals’ health. It is a key area of focus for governments as well as business leaders and investors. Yet, for something so important, why are the decisions made and outcomes achieved often so poor?
For example: How has every U.S. President since the early 1970s adamantly declared energy independence as a crucial goal, yet none has achieved it? Why do some parts of the energy world repeatedly undergo phenomenal booms only to be followed by massive busts? How did some of the most sophisticated investors in the world lose billions on their solar investments? How did European carbon regulations lead to incentives to burn more coal – the exact opposite of their intention? How does a hedge fund lose $6 billion of its $9 billion under management in just a few weeks of trading natural gas? Why is the world so slow to react to global warming even though the scientific community has issued clear warnings since 1988?
An intensive research process uncovered two key drivers. First, global energy production and usage have all the characteristics of a complex system: numerous interdependencies, non-linear behavior, constant adaptation, path dependencies, feedback loops and time delays. Accurately assessing the behavior from such systems is challenging. Second, human judgment – a key variable within such systems – is often materially skewed by emotions and psychology. People often make their worst decisions at exactly the wrong moment.
Michael Molnar applies his educational background in systems thinking and behavioral economics as well as his real-world experience as a hedge fund investor, investment banker and sell-side equity analyst to some of the most important topics in energy. The goal of the framework provided is to help governments, business leaders and investors make better decisions about what is arguably the most vital part of the world economy.