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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The middleware of democracy. Or from knowledge to wisdom: or at least knowledge 2.0

StyrelseSimon Heffer’s High Minds presents us with a portrait of the mid-Victorians in which they consciously set about building the world which became ours. A liberal democratic world.

To do so they recognised the need for all sorts of public goods. Those of education and health surely enough, an honest public service chosen on merit too (an idea they nicked from the Chinese who’d been at it for a millenium or so) and also civic virtue. It’s a stirring and a sobering story reflecting an age which I think had a more balanced understanding of the necessary ecology of public and private goods each reinforcing each other in building the Good Life.

Today for all manner of reasons – intellectual, sociological and economic - our contemporary vision is profoundly skewed toward private good and private endeavour as the paradigmatic category. That’s why I regard it as a happy hunting ground for low hanging policy fruit – a panoply of ways to drive productivity and economic growth that don’t even cost any serious government money.

But as Heffer makes clear, this Victorian quest was not just economic. It was a political project. As he argued in an interview with Geraldine Doogue – which I quote from memory because I can’t find on the ABC website – they knew that democracy was coming, so they needed to get The People a decent education before they used their vote to wreck the place. Continue reading

One reason why Britannia ruled the waves: TQM 18th C style

 

An Englishman enters a naval action with the firm conviction that his duty is to hurt his enemies and help his friends and allies without looking out for directions in the midst of the fight; and while he thus clears his mind of all subsidiary distractions, he rests in confidence on the certainty that his comrades, actuated by the same principles as himself, will be bound by the sacred and priceless law of mutual support. Accordingly, both he and all his fellows fix their minds on acting with zeal and judgment upon the spur of the moment and with the certainty that they will not be deserted. Experience shows, on the contrary, that a Frenchman or a Spaniard, working under a system which leans to formality and strict order being maintained in battle, has no feeling for mutual support, and goes into action with hesitation, preoccupied with the anxiety of see­ing or hearing the commander-in-chief’s signals for such and such manoeuvres. . . . Thus they can never make up their minds to seize any favourable opportunity that may present itself. They are fettered by the strict rule to keep station, which is enforced upon them in both navies, and the usual result is that in one place ten of their ships may be firing on four, while in another four of their comrades may be receiving the fire of ten of the enemy. Worst of all, they are denied the confidence inspired by mutual support, which is as surely maintained by the English as it is neglected by us, who will not learn from them.

Source:

Nelson leaves men onboard to whack polar bear: Inadvertently shoots own arm off

Don Domingo Perez de Grandallana, a Spaniard writing of the Battle of St Vincent where a relatively obscure Commodore Horatio Nelson first rocketed to celebrity thrill-seeker status. Disobeying orders, he headed his 74 gun third rate straight into six of the heaviest Spanish ships three of which were 112-gun three-deckers and a fourth the 130-gun flagship. With his ship’s wheel shot away, he led his troops to board an enemy ship and then with cries of “Westminster Abbey or Glorious Victory” ordered them to board another ship. Everyone ended up very impressed. The rest is history. 

 

Smartphone use in meetings and impressing your boss

Distractions abound: In an image from the inauguration, the entire Obama family is seen using their smartphones.This post is mostly a note to self: Like I keep saying, there’s an ecology between public and private goods. This article asks whether smartphones should be used in meetings. That’s a question about a cultural rule. It’s a public good question. The article however seeks the answer to the question in private feelings and etiquette.

The closest it gets to considering whether the rule – or some more felicitous variant of the rule – is good is considering whether you (an underling) should use your smartphone. Well no you shouldn’t. Why? Because it might annoy your boss.

TalentSmart has tested the emotional intelligence of more than a million people worldwide and found that Millennials have the lowest self-awareness in the workplace, making them unlikely to see that their smartphone use in meetings is harming their careers.

There are certainly lots of circumstances in which one could agree. It can be annoying. Sometimes very annoying. As I understand it one of Kevin Rudd’s staffers early in his term wore earpieces attached to an iPhone in meetings.

Still the moment I saw Twitter being used at conferences I realised there were costs and benefits and there could be strong benefits. The costs were distraction and all that can entail. On the other hand the spoken word is a very time inefficient medium for getting across information. You can read these paragraphs a lot faster than you can listen to them, and if there’s a lot to the article, you can also skim stuff you think you don’t need to read. Not so with listening to someone on a platform talking at you and taking you through his slides. And the more people there are in the audience, the greater the gain for them as they tailor their attention to what is generating the best value for them at the time (OK, that’s the theory, some will just be distracting themselves, but lots won’t).

Smartphones can be a pain in meetings if they’re used by people who don’t’ acknowledge their duty to the group to pay attention and know what’s going on. On the other hand you can occasionally check email and even write back without losing track. If you manage that then we’ve got a productivity gain on our hands. Not only doesn’t this article even canvass this possibility. It’s whole world is the world of impressing your boss. Too bad if he’s a jerk and is only impressed by your dumb obedient silence – too bad for the public good that is – which in this case is the interests of the organisation he’s bossing you about in. Continue reading

How the aged crowd out the young, and how it’s inefficient

This paper is pretty interesting. The last generation has seen the triumph of the baby boomers in attracting resources to themselves, at the cost of other generations, most obviously illustrated in throwing off the shackles of university fees (so other generations and the uneducated could pay for their university education) and then returning to ramp up fees on the oncoming generations. Ditto for the pension – which they’ll enjoy but get later generations to self-fund. Ditto all the tax breaks for self-funded boomers and on it goes though quite possibly the effect of house prices may be as or more important than all that.

Meanwhile think how those who rise to a certain position in the workforce tend to stay there, regardless of merit. This is not so true at the very top of large companies any more that seem to turn over their CEOs pretty quickly and ruthlessly (thought the terms of separation show a great deal of ruth). So economists tend to think of firms as making efficient decisions to survive competition, but they’re full of humangoes, and humangoes, just like mangoes have soft squishy bits that tend to do pretty much what they’re going to do whatever the state of competition is.

Demographics and Entrepreneurship

: by James Liang, Hui Wang, Edward P. Lazear – #20506 (IO LS)

Abstract: Entrepreneurship requires creativity and business acumen. Creativity may decline with age, but business skills increase with experience in high level positions. Having too many older workers in society slows entrepreneurship. Not only are older workers less innovative, but more significant is that when older workers occupy key positions they block younger workers from acquiring business skills. A formal theoretical structure is presented and tested using the Global Entrepreneurship Monitor data. The results imply that a one-standard deviation decrease in the median age of a country increases the rate of new business formation by 2.5 percentage points, which is about forty percent of the mean rate. Furthermore, older societies have lower rates of entrepreneurship at every age.

Why ‘how to’ guides on innovation are of limited use: An ‘untheory’ of innovation

Looking for a graphic for this blogpost, it was amazing how many of the pictures were of besuited men looking anything but innovative. Not a woman or unbesuited person for miles around. But I digress …

Thinking about how to write a fairly substantial review of knowledge and innovation in the urban water industry, I listed all the things that need to go well for innovation to thrive. What began as a kind of memo to self turned into a kind of unmanifesto, which is to say an explanation for why theorising about innovation can’t be taken very far (or, to be more circumspect, perhaps it can, but I’ve never found it very useful.) In fact there’s lots of writing about innovation – far too much – but most of it – including the best of it – is incredibly light on theory and is in fact storytelling. This is a complement to it, not a criticism given the lack of usefulness of theory.

The thing is, so many things have to work well together that that is the secret of innovation. And this challenge of ‘alignment’ – of purposes, of people of populations (I meant systems, but it didn’t start with ‘P’ and I’m trying to learn to be more arbitrarily and alliteratively memorabile) – will be particular to particular projects. There’s little of a general nature that can be said about them. Anyway, what began as a memo to self is now an important part of the way I think about this stuff. A theory (or untheory) of the non-theorisable. The things that must be finessed for innovation – doing things in new and better ways – to thrive in an industry or wider system are many and varied. Just listing them gives an indication of the difficulty of the task owing to its complexity and many faceted nature.

From creation to implementation
  • Innovation must be initiated either by those with a problem to solve or an opportunity to seize or elsewhere within the system. Where this is not spontaneous, it may require careful cultivation and the application of financial and other resources.
  • Once innovations are generated, they must become known to those who can use them beneficially including in some situations, those who are unaware of any specific problems, but who nevertheless can use such innovations to advantage.
  • Those who become aware of new knowledge must understand how to implement it to advantage.
Governance of innovation
  • A specific innovation may solve problems for some levels of a system but it may involve new routines, higher costs, inconvenience or disruption elsewhere. There will often (generally?) be no well-accepted means of determining priorities between the various considerations arising. Continue reading