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State of the Union: You could elect a broomstick

Step back a little from the details of the State of the Union address last night. It was eloquent but contained little genuinely new. Congress has seemed an exercise in gridlock and brinkmanship and short-sighted partisan bickering recently, no matter what side you are on.

I have had foreign diplomats and European and Japanese investors sit across from me in meetings in recent years increasingly filled with alarm, worrying about where the United States is going and how its political leadership can be so short-sighted and partisan and self-destructive. What they really want to know is not the minutiae, such as how it might affect defense spending in Albuquerque, but whether the US is able to solve its problems. That affects just about every other economic decision in the world over time.

I tell them it has always been like this. America manages to flourish despite (and sometimes because of) its political gridlocks. You could have sounded the same note of despair in the mid-1790s. The Founding Fathers themselves certainly did.

…A pervasive pessimism, a fear that their revolutionary experiment in republicanism was not working out as they had expected, runs through the later writings of the founding fathers. All the revolutionary leaders died less than happy with the results of the revolution… At the end of his life, George Washington had lost all hope for democracy. Party spirit, he said, had destroyed the influence of character in politics. Members of one party or the other now could “set up a broomstick” as candidate, call it “a true son of Liberty” or a “Democrat” or “any other epithet that will suit their purpose” and the broomstick would stil “command their votes in toto!”

So noted historian Gordon Wood in his pathbreaking (and Pullitzer-winning) book The Radicalism of the American Revolution. Would you have bet on a country whose greatest leader himself was having serious doubts about its future?


Instead, two hundred years of astonishing growth and success followed (punctuated by more political failures.) The remote group of barely four million bickering ex-colonists stranded an ocean away from the centers of science and culture and power turned into the most extraordinary story of energy and expansion in human history. Four million grew to over three hundred million people, and a few militias eventually became the greatest superpower since Rome. 

The revolution had unleashed energies and forces that the founding generation could not fully understand. Washington and Hamilton and Adams bitterly regretted the absence of disinterested gentlemanly virtue in politics, but somehow the country worked. Things have been far worse in the past than the current fiscal fight, and the United States has got through them. 

Sure enough, past performance may not be a guide to future prospects. But the message is Washington D.C is always engaged in short-sighted bickering. That’s what the checks and balances in the Constitution mean.

The real energy of America is not found on the House floor or the Dirksen Senate Office Building, but in obscure garages in Palo Alto or coffee shops in Seattle and polyglot neighborhoods along the 7 line in Queens.

So I look carefully at the details of the fiscal negotiations. But it’s important to see through the short term political messiness to the enduring strengths of America.

 

2017-05-11T17:32:59+00:00 February 13, 2013|Books, Current Events, Politics|

Attention is the crucial scarce factor in decisions, not information

Herbert Simon won the Nobel Prize for Economics essentially for a single book, Administrative Behavior, published three decades earlier in 1945, long before the current fashion for behavioral finance was invented.

He said:

.. The critical scarce factor in decision-making is not information, but attention. What we attend to, by plan or by chance, is a major determinant of our decisions. (p124).

It pays to be alert to what you pay attention to and what you can perceive. You need checklists.

 

2017-05-11T17:32:59+00:00 February 11, 2013|Books, Decisions, Mindfulness, Perception, Situation Awareness|

Smart Choices

Making good decisions requires serious skill. One of the major experts in the field over many decades is Howard Raiffa, at Harvard Business School. He has written a distillation of his more formal teaching together with two other researchers, John Hammond and Ralph Keeney: Smart Choices: A Practical Guide to Making Better Decisions.

It’s a very good little book which sets out a procedure to follow they call PROACT. It does not tell you what to decide, they say, but there is a lot to be said about how to decide.

PROACT stands for Problem, Objectives, Alternatives, Consequences and Tradeoffs. They also devote chapters to Uncertainty , Risk Tolerance and Linked Decisions, when a decision made today will have knock-on effects on future decisions.

The very first element shows how hard it can be to get decisions right, however. Figuring out what the problem actually is, and how you frame the issue “can make all the difference”.

To choose well, you need to state your decision problems carefully, acknowledging their complexity and avoiding unwarranted assumptions and option-limiting prejudices..The way you state your problem frames your decision. Posing the right problem drives everything else. .. To make sure you get the problem right, you need to get out of the box and think creatively.

Easily said, but much harder to do. You can question constraints or identify key elements, or look for triggers which explain why the problem has arisen, they say. But in practice one of the main ways to get the problem definition right is

Gain fresh insights by asking others how they see the situation… Their ideas will help you see your problem in a new light, perhaps revealing new opportunities or exposing unnecessary, self-imposed constraints.

After that, you need to think about your objectives are – what you want and need. The trouble is decision-makers often fail to spell this out – and fail as a result.

Why? Often decision-makers take too narrow a focus. Their list of objectives remains brief and cursory, omitting important considerations that become apparent only after they have made a decision. They concentrate on the tangible and the quantitative (cost, availability) over the intangible and subjective (features, ease of use). “Hard” concerns drive out the “soft’. In addition they tend to stress the short term (enjoy life today) over the long term (have a comfortable retirement). .. Easily measurable objectives won’t always illuminate what really matters. Watch out for this trap!

The next step is to generate alternatives. But, the authors say, “you can never choose an alternative you haven’t considered… Thus the payoff from seeking good, new, creative alternatives can be extremely high.”

You need to do your own thinking first, in case you are overinfluenced by advisors before you have thought it through. But after that,

you should then seek the input of others to get additional perspectives.. Keep an open mind during these conversations. The primary benefit may not be the specific ideas that others provide, but simply the stimulation you get from talking about your decision.

Once that is done, you examine the consequences of each alternative with as much accuracy, completeness and precision as you can, perhaps setting them out in a consequences table. The next step is to think about trade-offs between alternatives which match some objectives better than others. They outline a method of making “even swaps” between alternatives to eliminate some options which are dominated by others.

They discuss handling uncertainty, including different outcomes which are mutually exclusive and collectively exhaustive (which has become a mantra among McKinsey alunni) and using decision trees. Linked decisions can be structured to learn about the underlying problem over time. Finally, they go over a list of decision traps and biases, such as anchoring on first thoughts, overconfidence and base-rate mistakes.

One constant theme is that it is easy to be led astray by misperception:

At every stage of the decision-making process, misperceptions, biases and other tricks of the mind can distort the choices we make. Highly complex and highly important decisionsare the most prone to distortion because they tend to involve the most assumptions and the most estimates. The higher the stakes, the higher the risks. .. The best protection against all psychological traps is awareness. Even if you can’t eradicate the distortions ingrained in the way your mind works, you can build tests and disciplines into your decision-making process that can uncover and counter errors in thinking before they become errors in judgement.

Of course, I’ve started Alucidate precisely to try to help provide outside, independent, systematic advice that will help improve decisions, so I find this persuasive at any rate.

It is striking that the authors cover many of the standard decision techniques which are taught in business schools. But there are two consistent themes that run through the whole book that limit purely formal techniques. Framing is essential: you need to make sure you see the right problem and right objectives, as no techniques will help you find the right solution to the wrong problem. And it helps to talk to people , especially those who can help you understand the problem and alternatives.

In general, I think systematic approaches and checklists to make sure you don’t forget important elements are very valuable, especially in high pressure/high stakes environments when it is easy to get swept up in the crisis or the mood of the moment. I’ll look at other books about the use of checklists in due course.

 

 

 

2017-05-11T17:33:00+00:00 January 23, 2013|Books, Decisions, Mindfulness, Perception|