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“Likes” defeat better decision-making

Facebook is making many  people miserable, and that tells us a lot.  The Atlantic asked “Have Smartphones destroyed a Generation?” a few weeks ago.  One way to see the problem is social media is making people much more anxious to fit in with the herd, because peripheral status is so much more visible.  Pursuit of “Likes” substitute short-term immediate social popularity for developing your own path in any depth. That usually requires an ability to defer immediate gratification, gumption and often an ability to resist conventional expectations – the exact opposite of ephermal triumphs on social media.

That means it’s all very well to think about cognitive bias and Bayesian probability models and expected utility, as conventional policymaking does. But most people most of the time mainly care about how they fit in with other people, which is why a billion people are on Facebook and very few study statistics or Kolmogorov criteria. “Bias” thinking is mostly irrelevant to this pattern.

Indeed, one prominent scientific view argues that humans evolved larger brains in the first place to manage all the complexities of small group dynamics. We’re wired to think about status and reputation and pecking order,  in-groups and alliances, who gets credit and blame, and who is ostracized or ignored.  That, and cat videos, it seems.

There’s also some evidence that human culture has evolved to make us prone to imitate those with current high status in the group. For most people for most of slow-moving history, imitation  and “liking” the correct things has been a better survival strategy than uncertain adaptation or change.

Social media as human catnip

Social media is all about these deep social instincts. Getting “likes” on Facebook is a very shallow reward, but it is instantaneously visible and quantified. It’s like catnip to our inbuilt mental software. Not getting validation from the peer group can make people disproportionately miserable.  Similarly, Twitter has frequently deteriorated into hostile shaming and tweetstorms, making people fearful about saying anything at all.

There are strong forces in small group dynamics which push towards conventional thinking to please the groups’ vision of itself. Saying “we’re great” is guaranteed to get likes. Trying to divert attention to things that might rock the boat doesn’t attract many thumbs up.  People instinctively resist things that don’t validate the group, and try to enforce conformity with group norms.

Groups also tend to become small and exclusive and inert, however. They have an inherent tendency become maladaptive and mediocre because they validate conventions instead of adaptation. They tend to become fixated on internal alliances and factions rather than adapting to change.  Indeed, once a company or organization grows past a very small size, much of its energy starts to get absorbed by internal bickering, protecting existing territory, rivalry and gossip. People have a remarkable ability to fragment into competing small factions.

Stronger tools need to resist “like-“ability

Trying to impose a rational, neutral, dispassionate point of view has been the main way leaders have tried to cope with the fractiousness of our inbuilt software. But it usually does not work for long, as groups learn to express their factional interests in terms of universalistic language and high-minded ideas. People pay lip service to principles and go back to Twitter wars or ostracism campaigns. Indeed, it is gradually becoming apparent just how little durable success the social sciences have had in changing how people think and behave.

One of the only ways to do it is to pinpoint a few things in specific situation that don’t fit with the “”liked”conventional view   and get people to try to pay occasional attention to those few limited anomalies, like grit in an oyster that can become a pearl. I call them “markers.”

 

2017-09-05T08:39:31+00:00 September 5, 2017|Adaptation, Decisions, Uncategorized|

Abstract Principles Lead to Failure

Fixation on universal timeless principles necessarily has a tendency to produce catastrophe, because people become desensitized to exceptions, problems, flaws and change.

Take the current plight of the left in the US, for example, full of outrage against alleged Russian ties to Trump – but out of power. Conor Friedersdorf  recalled Richard Rorty’s 1998 book on what was wrong with the left in the Atlantic the other day: According to Rorty (who himself was a very leftish postmodern philosopher, of course,)

The contemporary academic Left seems to think that the higher your level of abstraction, the more subversive of the established order you can be. The more sweeping and novel your conceptual apparatus, the more radical your critique…

Recent attempts to subvert social institutions by problematizing concepts have produced a few very good books. They have also produced many thousands of books which represent scholastic philosophizing at its worst. The authors of these purportedly “subversive” books honestly believe that they are serving human liberty. But it is almost impossible to clamber back down from their books to a level of abstraction on which one might discuss the merits of a law, a treaty, a candidate, or a political strategy.

This is a style of thinking you can watch for, and it doesn’t just afflict the left.  It also helps explain the excessive faith in markets and deregulation that helped produce the 2008 collapse.

One cure is to ask the question “how would you test that assumption?”, followed by “what are the limits, boundary conditions or exceptions?”  A deeper cure is you need an entirely different mindset.

2017-07-11T14:58:55+00:00 July 11, 2017|Adaptation, Politics|

When to dump a leader (Pelosi edition)

Many “leaders” have a tendency to  think that they ought to keep doing the same thing, but with more “passion,” or intensity, or resources. As I said in the post below, however, optimizing is not the same as adapting to a changed situation. There are many situations in which more persistence and determination just get you more trapped in doing the wrong thing. It’s essential tor recognize them. Most people don’t.

The unfortunate consequence is that change then requires a change in leadership as well. Maybe the Democratic Party is realizing that after multiple defeats: “Pelosi’s Democratic Critics Plot to Replace Her.” If things are persistently not working, try someone with a fresh look.

That also means that if you’re a leader it’s better to look for ways to adapt or change your mind before people plot to remove you after a massive setback.  The oldest danger of leadership is woodenheadedness. Yet most leaders hire consultants to put a theoretical or quantitative veneer on what they already think.

2017-06-22T15:33:53+00:00 June 23, 2017|Adaptation, Decisions, Human Error, Organizational Culture and Learning|

Two very different kinds of expertise

Faith in experts has been faltering, as populists attack many established political and academic elites. So it is more important than ever to recognize genuine expertise. The trouble is that is often hard to do, despite how credentials are so important in most areas.

Many studies of expertise don’t help that much. Take Anders Ericcson’s new book, Peak: Secrets from the New Science of Expertise. Ericsson is best known for his interesting research into “deliberate practice.” Malcolm Gladwell popularized the idea by talking about “ten thousand hours”  necessary to pick up any advanced skill, but Ericsson is adamant that the kind of hours matter just as much as the amount. Experience alone is not going to improve your skills unless you push yourself outside your comfort zone, he says.  It’s all interesting stuff, and it’s worth reading.

The trouble is this approach applies almost entirely to fields where knowledge is cumulative, and where there are established teachers and teaching methods. You can practice similar situations over and over again. Examples include playing the piano or violin to a very advanced level,  and many games with set rules like chess, golf or soccer.

Most of the most important fields are not like this. As Ericsson notes in a brief aside,

What areas don’t qualify? Pretty much anything in which there is little or no direct competition, m such as gardening or other hobbies, and many of the jobs in today’s workplace – business manager, teacher, electrician, engineer, consultant and so on.  These are not areas where you are likely to find accumulated knowledge about deliberate practice, simply because there are no objective criteria for superior performance. (p98)

That excludes most of the main areas in which decision-making skill is required. But people have a tendency to ignore the boundary conditions for this kind of research, its limits of applicability.

There’s a deeper problem lurking here as well, if you think about it.  Those other fields are more difficult because the underlying factors that lead to success keep changing, partly because competition in them means people develop new techniques or approaches. What worked in selling computers in 1950 will not work so well now – but the skills required to be a top notch ballerina or violinist are almost the same. The rules of the game stay the same, even if competition grows more intense and training techniques alter over time.

The root of the issue is people generally confuse optimizing with adapting. They are not at all the same thing. Practicing the same skill over and over may optimize but it is much less likely to lead to adaptation.

Where does this leave us? Expertise in an existing field or game is not the same thing as dealing with changes in the rules of the game. That is a wholly different kind of problem.  Indeed, experts may be some of the last people to recognize that the rules are changing, as they have so much invested in existing interpretations. That explains why scientists rarely change their minds, but science slowly evolves without them.

Standard decision science, and most standard economics and economic policy, is about optimizing rather than adapting. But adaptation is necessary to success, and lack of adaptive skill is one reason why even the most credentialed experts often seem out of touch or wrong. To say so is not to deny expertise or science; instead it is to advocate a different kind of expertise and science.

There’s some other points to make, which I will come to shortly.

 

2017-06-22T15:12:35+00:00 June 22, 2017|Adaptation, Expertise|

Another strike against prediction and following formal rules

I was talking in the last post about how inappropriate and outdated some of the economics discussion about monetary policy has become, especially the whole debate about policy rules, credibility and commitment.  Nothing has been learned from the great crisis, and the field is mostly a dusty backwater twenty or thirty years behind most of the rest of the economy,

Idealized planning, prediction and forecasting had its heyday in the 1960s and 1970s in Western business (and before that the Soviet Union put its faith in planning.) It turned out to be a disaster. Formal forecasting didn’t work, and most such economists were shown the door in the private sector in the 1990s. But the approach is still going strong in economic policy, as if the clock stopped twenty years ago.

Here’s a contrast. Take the announcement that Amazon is buying Whole Foods yesterday. Amazon is, of course, wildly successful as a business. But Jeff Bezos does not try to forecast or predict. Instead, according to Farhad Manjoo in today’s NYT:

Yet if there’s one thing I’ve learned about Jeff Bezos, Amazon’s founder and chief executive, after years of watching Amazon, it’s that he doesn’t spend a lot of time predicting future possibilities. He is instead consumed with improving the present reality on the ground, especially as seen through a customer’s eyes. The other thing to know about Mr. Bezos is that he is a committed experimentalist. His main way of deciding what Amazon should do next is to try stuff out, see what works, and do more of that.

If you can’t reliably predict, then you have to think and act very differently.

2017-06-17T14:59:15+00:00 June 17, 2017|Adaptation, Central Banks, Economics, Federal Reserve, Forecasting|

Political shocks: We need a new form of legitimacy, not just economic growth

For once, the results of the first round of the French election lined up with the polls, with Macron and Le Pen through to the final round.  As always, most of the media gets obsessed with the horse race aspects of such elections. But there is no disputing CNN’s conclusion:

The result upended traditional French politics: Neither candidate hails from the establishment parties that have dominated the country for decades.

The previous order is already overturned, in yet another election.

What is going on here? This latest election, and the Trump and Brexit results, is most often talked about in terms of nationalism (or populism) versus globalism, or “closed” versus “open.”   But it’s something much deeper than a dispute over jobs or  trade or refugee policy.  It’s not a dispute over technique, or efficiency, but about goals.

I think it’s better understood as a dispute over legitimacy: what the state is for.  Electorates feel ignored and betrayed, both on the left and the right. The defenders of the current status quo, are faltering.

Let’s take a longer-term perspective, instead of getting hung up on the latest headlines. The US Constitutional Scholar and former National Security Council Official Phillip Bobbit wrote a history of the relationship between strategy and legal norms over the past 500 years, The Shield of Achilles: War, Peace, and the Course of History, in 2002. The nature of the state kept changing, he said, sometimes in response to political upheaval, sometimes in response to military change such as universal conscription. He traces the development from princely states to monarchical states to ‘state-nations’ to ‘nation-states’ to the current ‘market-state.’

The trouble is each transition between forms of state legitimacy happened through an epochal war.  Conflict and legal norms are intertwined, he argues. Each of those disruptive wars was resolved with a peace settlement, such as the Treaty of Westphalia or Versailles, which reset the norms of legitimacy for the next period.

Yet all constitutions also carry within themselves the seeds of future conflict. The 1789 US Constitution was pregnant with the 1861 civil war because it contained, in addition to a bill of rights, provisions for slavery and provincial autonomy. Similarly the international constitution created at Westphalia in 1648, no less than those created at Vienna in 1815 or Utrecht in 1713, set the terms for the conflict to come even while it settled the conflict just ended. (p xxiv)

Our own current system is the market-state. Its legitimacy, he said, is based on maximizing the opportunity of its people. The market-state is good at setting up markets, of course.  But:

unaided by the assurance that the political process will not be subordinated by the most powerful market actors, markets can become targets of the alienated and of those who are disenfranchised by any shift away from national or ethnic institutions.

In other words, every settled idea of political norms tends to wear out after five to ten decades, as the settlement of the previous great war recedes into history and political realities and military and strategic necessities change.  But politics gets stuck and the result is often a massive conflict, an epochal war, which shakes the international system to its core.

 

Since the 2008 crisis, it is obvious to many that the market-state is not delivering on its fundamental promise: maximizing opportunity. At the same time, its universalist notions of human rights (often perhaps developed as a rebuke to the Soviets in the Cold War) is redrawing the fundamental nature of democracy itself through massive demographic change and a fraying welfare state.  No wonder we’re seeing increasing conflict.

I’m not a believer in deterministic cycles. However,  history can sensitize us to the fact that no set of institutions lasts forever, and so we need to adapt.

The answer to the current turmoil is not to go back to the previous system of nation-states that itself arose on the ruins of empire. But neither is it to grimly defend a set of norms that made sense in 1945, or in an amended way, in 1970.  Many of those norms are cherished principles. On the previous record, that is likely to produce another epochal war – and the seeds of such extremism already seem to be flourishing.

We need to go forward instead. That requires a lot more creativity.

2017-05-11T17:32:34+00:00 April 24, 2017|Adaptation, Current Events, Europe|

Let’s ban forecasts in central banks

People should learn from their mistakes, or so we usually all agree. Yet that mostly doesn’t happen. Instead, we get disturbing “serenity” and denial, and we had a prime example of it this week. So it is crucial we develop ways to make learning from mistakes more likely. I’d ban forecasts altogether in central banks if it would make officials pay more attention to what surprises them.

The most powerful institutions in the world economy can’t predict very well. But at least they could learn to adjust to the unexpected.

The Governor of the Bank of England, Mark Carney, testified before Parliament this week to skeptical MPs. The Bank, along with the IMF, Treasury, and other economists, predicted near-disaster if the UK voted for Brexit. So far, however, the UK economy is surprising everyone with its resilience.

So did Carney make a mistake? According to the Telegraph,

If Brexiteers on the Commons Treasury Committee were hoping for some kind of repentance, or at least a show of humility, they were to be sorely disappointed. Mr Carney was having none of it. At no stage had the Bank overstepped the mark or issued unduly alarmist warnings about the consequences of leaving, he insisted. He was “absolutely serene” about it all.

This is manifestly false and it did not go down well, at least with that particular opinion writer.

Arrogant denial is, I suppose, part of the central banker’s stock in trade. If a central bank admits to mistakes, then its authority and mystique is diminished accordingly.

I usually have a lot of regard for Carney, and worked at the Bank of England in the 1990s. But this response makes no sense. Central banking likes to think of itself as a technical trade, with dynamic stochastic general equilibrium models and optimum control theories. Yet the core of it has increasingly come down to judging subjective qualities like credibility, confidence, and expectations.

Economic techniques are really no use at all for this.  Credibility is not a technical matter of commitment, time consistency and determination, as economists often think since Kydland & Prescott. It is much more a matter of whether people consider you are aware of the situation and can balance things appropriately, not bind yourself irrevocably to a preexisting strategy or deny mistakes.  It is as much a matter of character and honesty as persistence.

The most frequent question hedge funds used to ask me about the Fed or other central banks was “do they see x?”  What happens if you are surprised? Will you ignore or deny it and make a huge mistake?  Markets want to know that central banks are alert, not stuck in a rut.  They want to know if officials are actively testing their views, not pretending to be omniscient. People want to know that officials aren’t too wrapped up in a model or theory or hiding under their desks instead of engaging with the real world.

It might seem as if denial is a good idea, at least in the short term. But it is the single most durable and deadly mistake in policymaking over the centuries. The great historian Barbara Tuchman called it “wooden-headedness,” or persistence in error.

The Bank of England, like other monetary authorities, issues copious Inflation Reports and projections and assessments. But it’s what they don’t know, or where they are most likely to miss something, which is most important. Perhaps the British press is being too harsh on Carney. Yet central banks across the world have hardly distinguished themselves in the last decade.

We need far fewer predictions in public policy, and far more examination of existing policy and how to adjust it in response to feedback. Forget about intentions and forecasts. Tell us what you didn’t expect and didn’t see, and what you’re going to do about it as a result. Instead of feedforward, we need feedback policy, as Herbert Simon suggested about decision-making.  We need to adapt, not predict. That means admitting when things don’t turn out the way you expected.

2017-05-11T17:32:35+00:00 September 10, 2016|Adaptation, Central Banks, Communication, Decisions, Economics, Forecasting, Time inconsistency|

“Everyone was Wrong”

From the New Yorker to FiveThirtyEight, outlets across the spectrum failed to grasp the Trump phenomenon.” – Politico

 

It’s the morning after Super Tuesday, when Trump “overwhelmed his GOP rivals“.

The most comprehensive losers (after Rubio) were media pundits and columnists, with their decades of experience and supposed ability to spot trends developing. And political reporters, with their primary sources and conversations with campaigns in late night bars. And statisticians with models predicting politics. And anyone in business or markets or diplomacy or politics who was naive enough to believe confident predictions from any of  the experts.

Politico notes how the journalistic eminences at the New Yorker and the Atlantic got it wrong over the last year.

But so did the quantitative people.

Those two mandarins weren’t alone in dismissing Trump’s chances. Washington Post blogger Chris Cillizza wrote in July that “Donald Trump is not going to be the Republican presidential nominee in 2016.” And numbers guru Nate Silver told readers as recently as November to “stop freaking out” about Trump’s poll numbers.

Of course it’s all too easy to spot mistaken predictions after the fact. But the same pattern has been arising after just about every big event in recent years. People make overconfident predictions, based on expertise, or primary sources, or big data, and often wishful thinking about what they want to see happen. They project an insidery air of secret confidences or confessions from the campaigns. Or disinterested quantitative rigor.

Then  they mostly go horribly wrong. Maybe one or two through sheer luck get it right – and then get it even more wrong the next time. Predictions may work temporarily so long as nothing unexpected happens or nothing changes in any substantive way. But that means the forecasts turn out to be worthless just when you need them most.

The point? You remember the old quote (allegedly from Einstein) defining insanity: repeating the same thing over and over and expecting a different result.

Markets and business and political systems are too complex to predict. That means a different strategy is needed. But instead  there are immense pressures to keep doing the same things which don’t work in media, and markets, and business. Over and over and over again.

So recognize and understand the pressures. And get around them. Use them to your advantage. Don’t be naive.

 

2017-05-11T17:32:40+00:00 March 2, 2016|Adaptation, Expertise, Forecasting, Politics, Quants and Models|

Market Turmoil: Looking at the wrong things

The whole global economy is unravelling, if you believe some recent media claims. But oil and commodity price swings,  weaker emerging markets, or even renewed recession worries are not that unusual. In fact, this kind of news is completely normal and routine, as are the the scale of  share price falls so far Even a dip into recession in the US is a very normal occurrence. So why the air of panic?

I suggested in the last post  the underlying deeper concern is  whether policymakers have any “ammunition” left in the locker. The fear is any setback will feed on itself and turn into a downward spiral.  We are already at the zero bound on monetary policy, and we are still suffering a fiscal hangover from the 2008 crash. There are growing doubts among the public across the world about the competence of policymakers, which is also showing up in revolts against “the establishment.”  If there is another  downturn or any kind of problem, perhaps the policymakers can’t cope.

Let’s focus on economic policy, and leave the political side for later.  Are policymakers really out of options if there’s another market slide?  The answer is … actually yes, there are few effective policy options left. But the economy isn’t like a simple machine in which you can pull levers anyway. It’s complex, evolutionary and (mostly) resilient.  That means looking at the problem in a different way.

Avoiding Quackery

Central banks can always find something to do to appear busy or engaged. So we have seen the introduction of negative rates by the Bank of Japan last week, as well as talk of another round of QE by the Fed if recovery falls apart.

There were even rumors going around the other week that the Fed was intervening indirectly to affet the VIX, an index of market volatility, which is likely absurd.

In the end, the Fed could finally hire the helicopters Friedman and Bernanke mused about, and throw hundred dollar bills out the door in a new city every day to stimulate the economy. Would it help?

If a doctor doesn’t know what’s wrong with a patient, there are  always things which give the appearance of useful action, from trying random drugs right up to amputating limbs.

The question is whether the unconventional cure works, or perhaps has such severe side effects it makes things worse.  You can always try giving an aspirin to cure a heart attack, but it might not help much. If you get too unconventional in economic policy, just like in medicine you can end up in quackery, with snake oils, balsams and elixirs that promise to cure everything – with no actual effect.

And sometimes there is just nothing more even the most advanced medicine can do for a patient, despite the shiniest machines and telegenic doctors dramatically applying the defibrillator and yelling “clear!”  They give electric shocks to the patient .. .  while watching the screen trace flatline.  The same might be true in economic policy if the disease is serious enough.

The reality is the normal tools and cures are mostly played out. At best, the current “unconventional policy” central bank cures are very imperfect substitutes for cutting the main policy rate in a usual downturn. Sure, monetary policy can always increase the quantity of money, or try to push people into riskier assets by making riskless assets like bank balances or short-term bonds less attractive, or inflate away some debt claims. The markets mostly firmly believe that QE boosts the equity market (for a while.)

The problem is transmission from the financial sector to the real economy.  Or, as it sometimes called,  the old problems of “pushing on a string” or liquidity traps or animal spirits.   If there’s no demand for credit then the price of credit is irrelevant. If corporations are retaining profits and more focused on share buybacks than any new borrowing, then they don’t care about bond market conditions.

Also, it is hard to affect longer-term cycles or stock problems by acting on short-term flows. Ray Dalio argues we are at the end of a 70-year credit cycle, for example.

Buying time, not jump-starting the economy

Smarter central bankers know that there’s a limit to what they can do, or at least do effectively.  Just like most other economic phenomena, there is  diminishing marginal utility to most policy tools. The more realistic thinking behind the scenes  is at best they can buy time for other  processes to work themselves out, or perhaps offset some of the pain of restructuring and recovery in the real economy.  Central bankers can still stop bank runs or Bagehot-styles liquidity panics, but they can’t jump-start a whole economy.

And in any case perhaps, they sometimes think,  they are just letting politicians off the hook anyway. Monetary policy just enables the lazy politicians to avoid making tough decisions.  For example, fiscal policy – more government spending –  would be more effective than simply reducing the cost of money.

The trouble is fiscal policy has definite limits too (although the Paul Krugmans of the world have difficulty recognizing that.) Japan has spent trillions on stimulus and building infrastructure in the last two decades, running its debt to GDP up to more than 245%. There is plenty of concrete to show for it, but not a lot of vitality or growth. Bond markets more generally are potentialy fragile.

Getting Real

So if there are limits to stimulating demand, at some point you have to focus on the health of the real economy itself and the deeper sources of vitality and growth.  That  is where we need to look. The conventional economic answer here is you need to push through structural reform – more flexible labor markets, deregulation, more efficient tax collection, the usual range of things that the IMF always recommends.

Politicians have not been particularly good at that. Europe is always ducking such structural reform. A thousand initiatives to build “the next Silicon Valley” in Southeast Asia or Northern France or the Gulf States have faltered.

Economic Resilience

So here’s another thought:  perhaps even if the policymakers have no ammunition left, it might not matter so much.

The critical underlying assumption is this: how resilient is the economy anyway? How likely is to fix itself regardless of the policymakers?

Indeed, there is a long-standing and ferocious  argument that central bank intervention has usually made things worse. Attempts by the Fed to “fine-tune” the economy have usually led to errors and mistiming and moral hazard.  Central banks have a tendency to hit the accelerator just when they should be braking, and vice versa (in retrospect.) The belief in a “Greenspan put” or bank rescues has just made Wall Street reckless and greedy.

Indeed, until the 1930s, economists generally believed in laissez-faire. Intervention could only make things worse, delay adjustment and prolong the pain.  Andrew Mellon, Hoover’s Treasury Secretary, notoriously thought pain was necessary to “purge the rottenness in the system.”

Many libertarians still take this view, advocating a return to the gold standard or free banking. (I have got cornered by rich former used car dealers at the Cato Institute in DC arguing precisely that. At length.)

The Keynesian revolution denied all that. Sometimes the economy could get stuck in a much less desirable state or equilibrium and policymakers have to act.  And modern electorates flatly will not accept it. As Karl Polanyi argued, the gold standard would be impossible now because voters would revolt.

There is also the “BIS view” that the Fed in particular has overstimulated for two decades in order to avoid confronting the real problems. I’ll look at that another time.

I doubt the economy is inherently stable or that we can put much faith in equilibrium or simple “optimal control” ideas about policy.  But the economy is more resilient than we sometimes think.

So the most urgent question, we now see,  is what makes economies resilient?  And are we in trouble on that basis?    Maybe the economy isn’t like a machine where we can easily pull policy levers to make it change course. We’ve been looking for answers in the wrong places. It needs a different kind of thinking about economic policy, which involves complexity and leverage. Next.

 

 

2017-05-11T17:32:40+00:00 February 7, 2016|Adaptation, Central Banks, Economics, Federal Reserve, Monetary Policy|

Unlearn what you know, or go extinct

 

People can show remarkable dexterity (or self-deception) at deferring blame when a situation goes badly wrong, like a company collapse, or a foreign policy crisis. Or the FBI knocking on your door, asking for hard drives with top secret e-mails on them. How could someone have foreseen it? It was business-as-usual, everyone did it, it was tried and tested. The problem was impossible to see and therefore no-one is to blame. Or just bad luck.

Unfortunately, that's almost never true.

In every crisis we studied, the top managers received accurate warnings and diagnoses from some of their subordinates, but they paid no attention to them. Indeed, they sometimes laughed at them.

That’s the conclusion from one of the classic studies of organizational failures, Nystrom & Starbuck in 1984. Some people in a company generally always see problems coming (we’ve seen other research about “predictable surprises” here). But senior managers find it extremely difficult to “unlearn” parts of what they know.

Organizations succumb to crises largely because their top managers, bolstered by recollections of past successes, live in worlds circumscribed by their cognitive structures. Top managers misperceive events and rationalize their organizations’ failures. .. Because top managers adamantly cling to their beliefs and perceptions, few turnaround options exist. And because organizations first respond to crises with superficial remedies and delays, they later must take severe actions to escape demise.

Instead, the researchers say, managers try to “weather the storm” by tightening budgets, cutting wages, introducing new metrics or redoubling efforts on what has worked before. They typically waste time, and defer choices. In the meantime, the firm filters out contrary evidence, and often gets even more entrenched in its ways. This is normal corporate life.

… well-meaning colleagues and subordinates normally distort or silence warnings or dissents. .. Moreover, research shows that people (including top managers) tend to ignore warnings of trouble and interpret nearly all messages as confirming the rightness of their beliefs. They blame dissents in ignorance or bad intentions – the dissenting subordinates or outsiders lack a top managers perspective, or they’re just promoting their self-interests, or they’re the kind of people wo would bellyache about almost anything. Quite often, dissenters and bearers of ill tidings are forced to leave organizations or they quit in disgust, thus ending the dissonance.

And then one morning it turns out it’s too late, and there is no more time.

The only solution that reliably works, Nystrom and Starbuck say, is to fire the whole top management team if there are signs of a crisis. All of them.

But top managers show an understandable lack of enthusiasm for the idea that organizations have to replace their top managers en masse in order to escape from serious crises. This reluctance partially explains why so few organizations survive crises.

The only real hope is to adapt before you have to. But the much more likely outcome is senior decision-makers end up eliminated, and destroy their companies and their company towns and employees and stakeholders along the way.

Just think about what might fix this. It isn’t more information or big data , as it will probably be ignored or discounted. It isn’t forecasts or technical reports or new budgets or additional sales effort. It isn’t better or more rigorous theory, or forcing the troops to work harder.

It’s a matter of focusing on and looking for signs about how people change their minds. It’s about figuring out what might count as contrary evidence in advance, and sticking to it. If you’re a senior decision-maker, this might be the only thing that saves you, before some outside investor or opponent decides the only hope is to wipe the slate clean, including you. If you figure out you need it in time. Will you?