Club Troppo

As a summer exercise I’ve been thinking about places where more lotteries might be a good idea. By lotteries, I mean a decision maker selecting an option randomly, albeit perhaps from a selected pool, rather than using flawed criteria. After all, in a complex and uncertain world, even the best available criteria will be flawed and will insert some arbitrariness into the system. At best this just results random bad choices. At worst it will promote adverse behavior and selection and resentment amongst participants. Why not just make arbitrariness transparent and more purely random?

The Peter Principle is one (humourous but insightful) example, often put as “people are promoted to their level of incompetence”. Using the available criteria of people who are competent in their current jobs, selection of those to be promoted often fails to select the bets candidates for duties higher in the hierarchy. The bad selections oly become apparent when someone fails to perform in their new role. Plunchino and Rapisarda, after crunching the concept through game theory, found that random promotion may be the most efficient way of selecting those to promote.

Hierarchies, both in government and in the corporate sector, are rife with terrible selection procedures. The Peter Principle merely choses people on a criteria that doesn’t reflect what is really wanted. Many selection techniques actively choose bad traits. I’ve talked about the way narcissism may be partly responsible for a gender bias in executive positions. Those who are over confident are much more likely to put themselves forward, and to be able to sell themselves to decision makers. Unfortunately the most confident people are over confident. They’ll tend to be risk seeking, over estimate their own judgement and disregard advice, have an inflated sense of their own value (and subsequent entitlements) as well as an ability to deflect blame and subsequently fail to learn from mistakes. In short, you might be choosing the kind of person that takes a company down a risky road to the cost of stockholders, employees and eventually taxpayers – and then considers that they deserve a large bonus. Perhaps random promotion would have resulted in a broader array of neurological types, and more sober and responsible decision making from executives – or at least the kind that aren’t predisposed to exploit the principal-agent problem whenever it arises. It certainly would address the critique of quotas that Nicholas gives here, where a quota for women would merely promote narcissistic women.

Another problem with flawed criteria is that participants will quickly start altering their behavior to target it. If you start rewarding teachers based on test results, you risk them teaching to the test or “juking the stats”. When it comes to selections, this behavior may be very costly and, like persuasive advertising, is an aggregate economic loss. It’s only virtue is affecting the selection, often to the detriment of the quality of the decision, and at the expense of other behavior that might benefit the broader context, whether the organisation or society. In the hierarchical context, this can mean brown nosing and sycophancy at the expense of actual work (and which may be damaging to morale), or behavior that looks like hard work instead of productive work. The long working hours in Japanese firms are often filled with not very much work for the sole reason that selection favours the easily observable (working hours) over the less easily observable (productivity) – this has social costs of course, but it also means a tired and less productive workforce. (Continued)

White to play B Kovanova vs N Pogonina 22. ? See game for solution. about our puzzles

But you can look up the game, and the computer analysis on chessbomb if you’re curious.

Being in holiday mode, my brain is deeply immersed in trivial thoughts, not least who the Australian selectors could sensibly pick to begin the process of rebuilding a competitive cricket team.

However an even more burning question is this: why are there so many cooking programs on TV?  It can’t just be that they’re much cheaper to make than scripted drama or comedy.  People must actually like watching them.  But why?

There’s certainly a moment of harmless if tacky diversion involved in watching the amply endowed voluptuous Nigella figuratively fellate her audience while whipping up tasty comestibles.

I even confess to once watching a couple of episodes of Gordon Ramsey in horrified fascination, though only to find out just how much bullying and humiliation contestants would tolerate in the hope of fleeting foodie fame (the answer appears to be that there’s no limit, otherwise someone would have punched Ramsey’s teeth down his throat years ago).

But with those exceptions, why would you watch a cooking show?  And if learning the finer points of domestic chores is entertainment, why don’t we see shows like Poh’s Laundry or Nigella’s Mopping and Vacuuming Titbits? Please explain.

When debating policy and strategy within firms for instance, the debate takes place as if the discourse will get us to truth or falsity. In fact our decision making is riven with biases, so an alternative to this would be to look for one’s biases and to try to counteract them – to try to guard against stupid decisions. Still, as Robert Solow might say, such an approach lacks strength of character (before he concludes “sometimes I think it’s only my weakness of character that keeps me from making obvious errors”.)

Anyway, this is relevant to a particular kind of dysfunction that takes place within large organisations. Large organisations try to get the best deal they can from their suppliers in terms of price and quality. That’s as you would expect. But they also take this too far for their own good by privileging their own convenience ahead of the smaller organisations.

A relatively trivial example that springs to mind from my own experience is the requirements for putting in a tender for work for governments. They often require it to be physically lodged and then lodged in triplicate. But until you get the job, your tendering for a job is doing the government a favour (unless they’re paying you to tender which happens to short-listed firms for really big jobs like building freeways and so on).

As Warwick Cathro of the National Library says “Collaboration requires effort, and it also requires a change of mindset. In particular it requires a willingness to examine services from a perspective which does not place one’s own institution at the centre.” And like Warwick is implying in that quote, big organisations are not good at that.

I’m wondering if, and how organisations have dealt with this problem?

When I heard of the term “developers’ advocate” within Google and other large software companies I imagined it to be a position that exists advocating within the large buyer organisation for the interests of (usually small) developers outside it and thus seeking to stop the kind of thing I’ve mentioned above by ensuring that small outside firms have an advocate within Google. Having read the description of the position here, it seems that the position is mainly an outward looking role – towards developers and their markets. Yet one of the responsibilities is to “Influence Google developer product strategy by working with product management, engineering, marketing, business development, and operations.”

So can anyone enlighten me in my search for ideas and precedents in the empirical world for finessing  this problem of large firms interacting with small firms in such a way as to optimise the balance of their respective convenience?

As ever, the prize is a First Class trip to the fantasy destination of your choice to be met and dined by Sir Richard Branson, Lord Julian Assange and Dame Sarah Palin on successive evenings.  The Troppo Merc Sports is currently slightly dented and on loan to Ricky Ponting.

Computers are very clever beasties – at least most of the time. Sadly their matches against each other are deadly dull. The games virtually never have strong strategic lines of thinking – which is the main thing that makes chess absorbing (for me anyway – a battle is waged: a story is told).  Still, for my sins, I occasionally check out their games which are usually very long and involve some small tactical edge emerging and then gradually being converted into a win – or just winding down into a draw.

Chessbomb is a great site where you can watch chess tournaments from all round the world, move by move as the games unfold as well as a powerful computer analysis of the positions as they unfold. The computer is usually a very accurate judge of how things are going. Anyway, you can also watch computers grinding away against each other. One such tournament, underway now, is  TCEC S1 Division 2.  What does all that mean? I have no idea, but it’s a computers’ comp.

While working away on other things last night I kept the occasional eye on the game in round 9 between Protector 1.36.387 and Junior 12.0. [I've just figured out how to provide a direct link. NG] And something very strange unfolded. Protector was smart enough to get itself an entirely won game against Junior which is a seriously good program. When I checked out the game this morning Protector had flipped its lid. It didn’t seem to know that to endgames you should try to hang onto the pawns you have (they’re don’t make them any more after the start of the game.

No human beings were hurt in the hosting of the game (I presume) but some programmer’s bonus may have been cut. Seriously, the thing seems to have blown some gasket. I could have won the endgame against Junior!

Banks privatise the gains they make and in times of crisis initially socialise their losses (amongst the private providers – so that larger more solvent banks mop up after smaller less solvent ones), and failing that us customers get the bill as taxpayers. Back in the days before airline de-regulation in the US as the recent Slate Story makes clear, a similar kind of obligation applied where, if an airline couldn’t get you somewhere, it had an obligation to to do their best with a competitor.  Deregulation put paid to that – though presumably it sometimes happens according to private arrangements between the airlines. Australia’s airline market is less cut-throat both between airlines and between airlines and customers than the US and it’s not that bad, but it’s not that good either.  I’m all for the basic work deregulation has done, but I suspect a bit of gentle leaning (and perhaps even slightly more sturdy leaning on) the airlines to work together as much as possible where passengers will otherwise be hugely inconvenienced would be what we all like here at Troppo – a Good Thing.

The article is below the fold. (Continued)

It’s a pity we lost Troppoarmadillo, not the blog so much (for ClubTroppo lives on) as it’s archives. Anyway, I had occasion to look up the post and comments below, and they are safely encoded at archive.org, even if we don’t have any backup of the blog archive itself. I don’t think I’ve reposted myself here before (though I’m not sure – I certainly haven’t done it much in five years).  So here’s the post, which is really an essay.

The comments were great back then too. I think we’re noticeably a little less cerebral, a little less serious these days. Anyway I hope you enjoy and perhaps we can take up from where we left off.  And apologies for the formatting of comments.  For some reason once lifted from archive.org the comments wouldn’t go down more than one at a time, which wasn’t something I was going to persevere with, but you can read them better formatted here.

Here’s a short essay I’ve written. The magazine of the Aurora tower in Sydney (would you believe?) approached me to write something for them. They’re even paying me!

Readers of my piece on open source software (pdf) that I discussed on Troppo a month or so back (now published in Policy) will recognise it as having similar themes to that piece. Comments appreciated.

One for one and one for all

I. Introduction

When next you get depressed about planes flying into buildings, and the other myriad miseries we poor humans inflict on ourselves, just take it from me that maybe there’s still something to that old idea about human progress after all.

Two miraculous new ways of working have emerged that are steadily making the world a little better every day. They have their enemies of course – as the saying goes, no good deed should go unpunished – but their success is unstoppable and growing.

The first has allowed millions to lift themselves out of poverty – for a ridiculously small outlay. The second is building a software infrastructure for all that is freely accessible for an even smaller outlay – nothing. (Continued)

As readers may have noticed, I’m much of a one for the panto morality in which political leaders are urged to be ‘leaders’ at the expense of their own political viability. Yes, acts of political heroism occur. Some of them are even worthwhile, though they’re mostly of little consequence. It’s a bit like terrorists blowing themselves up. Not a great way to propagate what they’re trying to bring about. Sept 11 2001 was a great product launch for al-Qaeda, it’s first major gig on US soil. But what might twenty odd crazies dedicated enough to killing themselves have achieved in the way of additional murder and mayhem if they hadn’t killed themselves.

Anyway, no doubt they’re happy now in the presence of however many virgins they all get.

So my view is that if you want to fail, go into religion, not politics. What is of more interest, because it is of more consequence in politics, is where politicians have the imagination and the guts to find ways in which doing what is in the interests of their constituents is also in their own interest. That’s what being a great politician is about IMO.  And by that standard Bob Hawke was Australia’s great post war politician and Paul Keating was not (except for his huge contribution to Hawke’s prime-ministership.

If you’re ever wondering about my own views on the way economics and politics fit together that’s how – as I tried to emphasise in this interview.

And why am I telling you all this.  Because Robert Tiffen thinks the same way, and has written this great op ed urging Kristina Keneally to lose the next NSW election smart rather than dumb. Note his deft integration of political self-interest and the Greater Good. (Highlights beneath the fold).

(Continued)

Kasparov v Anand 1990. No prizes for guessing who won.

And while I’m about it, here’s how to get yourself into the mother of all zugswangs.

Why am I not surprised?

An interesting new article in the Nov 2010 QJE

Stock-Based Compensation and CEO (Dis)Incentives

Efraim Benmelech, Eugene Kandel, Pietro Veronesi

The use of stock-based compensation as a solution to agency problems between shareholders and managers has increased dramatically since the early 1990s. We show that in a dynamic rational expectations model with asymmetric information, stock-based compensation not only induces managers to exert costly effort, but also induces them to conceal bad news about future growth options and to choose suboptimal investment policies to support the pretense. This leads to a severe overvaluation and a subsequent crash in the stock price. Our model produces many predictions that are consistent with the empirical evidence and are relevant to understanding the current crisis.