Natural Activity Level

Template:Dated prod Encyc values your contributions. Thank you. The Natural Activity Level Theory was developed in 2009 by Stephen Wheeler, an English actuarial mathematician living in Argentina. The bases of Wheeler’s Natural Activity Level Theory are that:- the minimum risk associated with any activity is when that activity is most natural the level above or below the natural level causes an quasi exponential increase in risk a period of unnatural risk above or below the natural level is followed by the opposite effect

Therefore the theory states that an activity started from zero without any precedents, knowledge, money or experience has nearly 100% risk as does an activity level that is operating at its maximum level. An example of this is that a sportsman performs his best with less risk after he is warmed up and before he gets tired.

The natural activity level can be increased or decreased by various factors such as experience, technology, finance, communication, education, routine, age, climate, style, control, psychology, health etc.

A corollary of the above is that a person, sportsman, business or country has least risk when he or it expands his or its natural activity by changing one or more of the above factors, each one having the capacity to cause a paradigm change in the natural activity level.

Confidence is not a natural state because it takes a long combination of time and activity to gain and can be lost instantly. Temporary overconfidence and lack of confidence are conditions of increased risk and are normally followed by opposite reactions. A person lifting 20kg weights each day suddenly has a burst in confidence and wants to lift 40kg and pulls a muscle

Temporary pressure is similar to confidence in that it is not natural and the increased pressure can increase activity but also increases risk and a period of pressure is normally followed by a period of relaxation or underachievement.

Another corollary is that any decision changes one or more of the natural activity characteristics and therefore increases the risk level and hence decisions separated from actions involve less risk. Examples of this include a footballer making a decision where to hit a penalty as he is running up to kick the ball normally results in a miss or getting up late for work forces a change in routine and hence requires making decisions that are frequently wrong. New small companies involve far higher decision making than old established companies and each decision seems more important and hence their much higher risk level. In sport there is a dichotomy in respect of whether a person performs better by relaxing or concentrating but both are unproven but like Michael Jordan is supposed to have said ‘It’s funny that I have more luck when I practice more’. Practice or routine makes an activity natural but decision making makes it unnatural and therefore decisions should be separated from natural activity. Forced concentration or over relaxation makes an activity unnatural. The adage is ‘play your natural game’.

The theory can be applied to any person, company, town, activity or country and therefore the best consistent performance is obtained by the correct analysis of the appropriate natural activity level and the risks involved in any change of that activity level. An example is the increase in risk of promoting someone to above the level of competence. Another is if a country is a marginal producer rather than a natural producer it over benefits in good times but loses everything in bad times like Mexico in car production for the USA in 2009 or Thailand in electronic production. The adage is ‘what goes up fast, comes down fast’ because obviously it was invariably caused by an unnatural condition. When a boy ignores or ‘smothers’ a girl then the relationship has increasing risk because it is not natural.

Mini natural activity levels can be observed within an macro unnatural activity level if that activity is long lasting, for instance, the activity of car buying and going to restaurants was caused by the increase in wealth effect caused by the unnatural growth of credit for, and confidence in, the housing market, this involved the increase in systemic risk.

If a country is over a period of time expanding at say, 5% per annum, in a given sector then it is natural for the natural activity level of companies in that sector to increase by the same and if the increase suddenly drops then the risk increases correspondingly. This explains the problems in China and India in 2008 where there were many recessionary effects even though the economy was still expanding strongly and also Japan in the early 1990s.

Minimizing risk by operating at natural activity levels obviously does not result in the maximum return over the short term but should produce the maximum performance over the long term. The aim must be to maximise profit with the minimum of risk. A corollary of this is that short term bonus structures are not conducive to managing and controlling risk.