Tips and tricks, or ‘tips and tricks of the iceberg’: Going meta on behavioural economics

Standard economics’ traditional penchant for focusing on problems that are chosen for their formal tractability rather than their resemblance to real world problems squeezed non-monetary incentives and ‘irrational’ motives from economists’ purview. At the same time bureaucracies are very good at doing the same thing – of ignoring the specific nature of the life world of those they serve. (Of course ‘cultural incentives’ and if you like ‘irrational’ motives are at the heart of what makes bureaucracies work at all, but that’s internally. Those very conditions create fertile ground in which the organisation will make presumptions on the rationality of those whom they serve. But I digress.)

There are two potential ‘narratives’ as we say these days about behavioural economics as an antidote to this state of affairs. The first – exemplified, for instance in this blog post from behavioural economics consultancy 42 ideas - is that behavioural economics and the policies that emerge from it provide an example of economics’ taking upon itself the injunction “Physician health thyself”. Thus in the place of homo economicus - a simplified but unrealistic view of human nature – behavioural economics investigates the way this model is wrong and policy inspired by it takes those things into account in proposing new policy.

Thus the nudge unit in the UK (we have a small clone of it in NSW) does AB testing on government correspondence – discovering and exploiting the fact that taxpayers show stronger compliance to an arrears letter from the tax authorities if it contains a sentence like “over 90% of taxpayers pay their taxes on time” and the response is a bit higher still if the sentence makes the comparison more personal still “Over 90.5% of your neighbours in Notting Hill pay their tax on time”. These are ‘nudges’ in the vernacular of this field and so too is attention to trying to set the most benign possible defaults to take into account the power of inertia. The classic example – used around the world in both government and business these days is setting people’s savings plans to save higher proportions of their income (often by diverting any pay rise they have received into savings) unless they make a conscious decision not to go along, in which case it’s as easy as ticking a box on a form and they can (consciously) choose some alternative. This is behavioural economics as a box of tips and tricks to be added on to neoclassical economics. The physician, if he hasn’t healed himself, has introduced some routines that are better suited to the world.

But there’s another way to look at these tips and tricks – to look at them as ‘tips and tricks of the iceberg’. Ultimately people must be encountered as such. The tips and tricks of behavioural economics are no more or less than a summary of rules that have been gleaned that have the generality necessary to find their way relatively straightforwardly into the learned journal literature. But there’s a whole life world out there. That’s what needs to be encountered and that’s what is always in danger of being given insufficient weight. As Hayek put it

Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is . . . a body of very important but unorganized knowledge: . . . the knowledge of the particular circumstances of time and place. [In this] respect . . . practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation.

Hayek only ever paid any attention to one particularisation of this general proposition – he’s thinking of the value the trader adds in a market to the knowhow of the scientist, the accountant, the engineer, the boss. But the observation is a much wider one. Yet the very tyranny of central planning against which he set himself is alive and well inside organisations, not least government organisations and those that deliver their services.

 

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Hypocrisy and the outbreak of crypto-socialism amongst our corporate overlords: Shock!

Mark zuckerberg tim cookIn an outbreak of cross-pontification Tim Cook thinks that Facebook and Google customers should be pretty suspicious of them because they collect a lot of data. Not to be outdone, Mark Zuckerberg thinks that Apple should cut its prices so it doesn’t make as much money. He doesn’t think that Facebook should cut it’s prices to its users – perhaps by paying them a cut of the revenue they bring in – to bring Facebook’s profit down to the kinds of reasonable levels he feels Apple’s profitability should be.

Still, it’s nice to see St Thomas Aquinas’s theory of the just price if not making a comeback, then at least poking its head over the parapet.

The interregnum at the Australian Public Service Commission

Many years ago now, Steve Sedgwick the Australian Public Service Commission explained to me that it wouldn’t be right to publish the hoard of information the APSC has on APS employees’ attitudes to their workplaces agency by agency because that would undermine the relationship of discretion and cooperation the APSC has with agencies.

Just thinking about that argument it falls apart it seems to me. If the rules are the results are published the APSC publishing the data isn’t a hostile act, it’s just process. Anyway, no progress has been made while this kind of data has been published in other countries routinely and the whole world gets the bug on open data.

Meanwhile I suspect the reports the APSC sends each agency outlining its performance are FOIable. If that’s true it’s all a bit of a house of cards waiting to fall. And all of a sudden five capability reviews appeared on the APSC website one Friday afternoon. The Mandarin covered the contents of the reviews which are quite candid about departmental shortcomings. Only two of the five capability reviews were recent. One was from earlier this year and two were from last year.

No press release, no date on the website. Why? Who knows, but here’s hoping the house of cards continues to collapse.

Where are we with Geo-Engineering in 2014?

Geo-engineering is increasingly looking like the only politically viable way of averting temperature rises above 2 degrees in the coming century. This is for three interlocking reasons: i) Any mayor country can try geo-engineering on its own without permission from anyone else, meaning one does not need a world coalition sustained for centuries to have an effect; ii) It holds the promise of immediate relief because ‘natural Solar Radiation Management’, ie volcanic eruptions that add lots of light-reflecting particles into the atmosphere, were found to cause immediate worldwide temperature drops, which compares favourably with the lags of decades and centuries that hold for CO2 emission reduction plans; and iii) It might be exceedingly cheap compared to any policy involving emission markets. For instance, according to a 2012 piece by McClellan and co-authors, we could keep the planet at current temperature levels at a cost of merely 10 billion dollars a year by having a fleet of planes deliver reflective particles high in the earth’s atmosphere.[1]

Given that continued global warming is predicted to happen in the next century no matter what emission policies are adopted, geo-engineering by some impatient large country is starting to look nigh inevitable. I reported in 2012 on the research efforts funded by the Royal Society, the Gates Foundation, and others. You now have dedicated institutes on this issue (eg. http://iagp.ac.uk ), and lots of new proposed experiments. With a large glut of published studies in recent years, it is time for an update: how far are we now in the world of geo-engineering?

The honest answer is that the scientific community is pussyfooting around when it comes to geo-engineering. Field experiments are largely stalled as scientists are awaiting regulatory frameworks that will protect them from criticisms of other scientists and environmental groups. Proposed regulatory frameworks designed to deliver this, such as by Nordhaus and colleagues, find it hard to get much political traction because politicians seen to support regulatory frameworks themselves become targets for criticism, both by those who pretend there is no climate change and by those who insist there is climate change but who also insist on emission reductions as the only way to return to our current climate some 300 years from now. Voters who agree the world is getting too hot and who would like it cooled down in their own lifetime rather than that of their great-great-great-great-grandchildren are still too rare to bother with for politicians.

This does not mean there is a lack of bright ideas. The engineers looking into this really are a very creative bunch, talking about whitening clouds, aerosol sprays, reflective shields, and artificial trees. One new idea that I hadn’t heard before is to genetically alter our crops so that they reflect sunlight better than the current crops. I don’t know whether this has any chance of getting serious traction, but one has to admire the ingenuity of the idea. Still, ominously, almost no field tests or large scale long-term testing is underway as scientists are waiting for societal approval to go ahead. Continue reading

Cut the waste! Stop the boondoggles!

Junction Oval

Junction Oval

Victorian Premier Dennis Napthine announces a “plan” to spend $20 million upgrading Junction Oval at St Kilda to accommodate the AFL team named after the suburb, even though it hasn’t played or trained there for decades. The plan appears not to have been checked with the local council or the AFL, and would apparently need another $37 million in infrastructure funding from the Abbott government.  At first glance it looks to be a complete waste of money with few if any redeeming features.

The Melbourne East West Link tunnel is a vastly more expensive but equally dubious project in cost-benefit terms that Napthine has rammed through despite very widespread opposition, including from the ALP which has said it won’t build it under any circumstances if elected.

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Complexity, reducibility, integrity and bullshit: the general untheory

I

Some readers may recall an earlier post which I christened an ‘untheory’ of innovation. It argued that there’s not much use in ‘theories’ of innovation if they’re taken as recipe books for senior managers to ‘drive down’ innovation through organisations. Why? Because if innovation is to thrive, endless decisions must be made to facilitate any number of different innovations and it can’t be known in advance who should be co-ordinating those decisions. An innovation might involve some slight or pronounced change in accounts, marketing, technical specifications, supplier relations, training, industrial relations and on and on. For these decisions to be made well – or as I like to say ‘on the merits‘ – all sorts of pathologies must be overcome:

There are hierarchies, there’s groupthink, there’s second guessing hierarchies, there’s trying to keep people happy and consensus at any cost, there’s ‘not invented here’, there’s ‘not in my backyard’ there’s excessive risk-aversion (though it’s usually aversion to a certain kind of risk, which is the product of another pathology – process hugging) and other manifestations of status quo bias, there’s adulation of those with high status either within a hierarchy or the wealthy and powerful over the less so and on and on.

That’s why I’ve argued that one of the most useful things one might do as far as ‘teaching’ management or innovation is concerned, is to coach managers not with the usual flattering stories of how far sighted heroic managers were, but rather with unflattering stories which highlight the foibles of our understanding – and offer means of overcoming them. What I’m arguing for is a recognition of the irreducibility of the on the ground experience – its lack of susceptibility to systematic, theoretical insight and its management corollary – policies adopted and driven from the top.

There are any number of areas in which we wave away the possibility of such irreducibility and instead embrace an empty and deluded kind of managerialism in which those at the top are forever attending strategy sessions, restructuring, reengineering and all the rest of it. Progress is not made (and as an aside, cannot easily be measured or ranked) because a lot of the progress that is necessary is sui generis and made at the coalface – or at least must involve the giving the coalface and autonomy to solve its problems and push for improvements.

Some other areas where this jumps out at me are: Continue reading

Shock! Good government improves wellbeing

Actually the magnitude of the effect is a bit of an eye-opener.

Empirical Linkages between Good Government and National Well-being
by John F. Helliwell, Haifang Huang, Shawn Grover, Shun Wang

Abstract:

This paper first reviews existing studies of the links between good
governance and subjective well-being. It then brings together the
largest available sets of national-level measures of the quality of
governance to assess the extent to which they contribute to
explaining the levels and changes in life evaluations in 157
countries over the years 2005-2012, using data from the Gallup World
Poll.

The results show not just that people are more satisfied with their
lives in countries with better governance quality, but also that
actual changes in governance quality since 2005 have led to large
changes in the quality of life. For example, the ten-most-improved
countries, in terms of delivery quality changes between 2005 and
2012, when compared to the ten countries with most worsened delivery
quality, are estimated to have thereby increased average life
evaluations by as much as would be produced by a 40% increase in per
capita incomes.

The results also confirm earlier findings that the delivery quality
of government services generally dominates democratic quality in
supporting better lives. The situation changes as development
proceeds, with democratic quality having a positive influence among
countries that have already achieved higher quality of service
delivery.