Archive for the 'Decision theory' Category

Presidential planning

Published
by
Peter
on 20/11/2008
in Decision theory, Intelligence, Planning and Project Management
. 0 Comments

Gordon Goldstein has some advice for President-elect Obama in managing his advisors.  Goldstein prefaces his remarks by a potted history of John F. Kennedy’s experience with the CIA-planned Bay of Pigs action, an attempted covert invasion of Cuba.    Although Goldstein’s general advice to Obama may be wise, he profoundly mis-characterizes the Bay of Pigs episode, and thus the management lessons it provides.   As we have remarked before, one aspect of that episode was that although the action was planned and managed by CIA, staff in the White House - including JFK himself! - unilaterally revised the plans right up until the moment of the invasion.   Indeed, the specific site in Cuba of the invasion was changed - at JFK’s order, and despite CIA’s reluctance - just 4 days before the scheduled date.  This left insufficient time to revise the plans adequately, and all but guaranteed failure.  The CIA man in charge, Dick Bissell, in his memoirs, regretted that he had not opposed the White House revisions more forcefully.

Anyone who has worked for a US multi-national will be familiar with this problem - bosses flying in, making profound, last-minute changes to detailed plans without proper analysis and apparently on whim, and then leaving middle management to fix everything.  Middle management are also assigned the role of taking the blame.  This has happened so often in my experience, I have come to see it as a specific trope of contemporary American culture — the supermanager, able to change detailed plans at moment’s notice!     It is to JFK’s credit that he took the public blame for the Bay of Pigs fiasco (although he also ensured that senior CIA people resigned for it), since so much of the real blame rests squarely with him and his White House national security staff. 

The Bay of Pigs action had another, more existential, problem.  CIA wished to scare the junta running Cuba into resigning from office, by making them think the island was being invaded by a vastly superior force.  It was essential to the success of the venture that the Cuban government therefore think that the force was backed by the USA, the only regional power with such a capability and intent.  It was also essential to the USA’s international reputation that the USA could plausibly deny that they were in any way involved in the action, in order for the venture not to escalate (via the Cold War with the USSR) into a larger military conflict.   Thus, Kennedy ruled out the use of USAF planes to provide cover to the invading troops, and he continually insisted that the plans minimize “the noise level” of the invasion.   These two objectives were essentially contradictory, since reducing the noise level decreased the likelihood of the invasion scaring Castro from office.  

The Bay of Pigs fiasco provides many lessons for management, both to US Presidents and to corporate executives.   One of these, seemingly forgotten in Vietnam and again in Iraq, is that plans do matter.   Success is rarely something reached by accident, or by a series of on-the-fly, ad hoc, decisions, each undertaken without careful analysis, reflection and independent assessment.

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Epideictic arguments

Published
by
Peter
on 06/11/2008
in Argumentation, Culture, Decision theory, Politics, Rhetoric and Uncertainty
. 1 Comment

Suppose you are diagnosed with a serious medical condition, and you seek advice from two doctors.  The first doctor, lets call him Dr Barack, says that there are three possible courses of treatment.   He labels these courses, A, B and C, and then proceeds to walk you methodically through each course - what separate basic procedures are involved, in what order, with what likely side effects, and with what costs and durations, what chances of success or failure, and what likely survival rates.   He finishes this methodical exposition by summing up each treatment, with pithy statements such as, “Course A is the cheapest and most proven.  Course B is an experimental treatment, which makes it higher risk, but it may be the most effective.  Course C . . .” etc.

The other doctor, let’s call him Dr John, in contrast talks in a manner which is apparently lacking all structure. He begins a long, discursive narrative about the many different basic procedures possible, not in any particular order, jumping back and forth between these as he focuses first on the costs of procedures, then switching to their durations, then back again to costs, then onto their expected side effects, with a tangential discussion in the middle about the history of the experimental tests undertaken of one of the procedures, etc, etc.  And he does all this without any indication that some procedures are part of larger courses of treatment, or are even linked in any way, and speaking without using any patient-friendly labelling or summarizing of the decision-option.

Which doctor would you choose to treat you?  If this description was all that you knew, then Doctor Barack would appear to be the much better organized of the two doctors.   Most of us would have more confidence being treated by a doctor who sounds better-organized, who appears to know what he was doing, compared to a doctor who sounds dis-organized.   More importantly, it is also evident that Doctor Barack knows how to structure what he knows into a coherent whole, into a form which makes his knowledge easier to transmit to others, easier for a patient to understand, and which also facilitates the subsequent decision-making by the patient.  We generally have more confidence in the underlying knowlege and expertise of people able to explain their knowledge and expertise well, than in those who cannot.

If we reasoned this way, we would be choosing between the two doctors on the basis of their different rhetorical styles:  we would be judging the contents of their arguments (in this case, the content is their ability to provide us with effective treatment) on the basis of the styles of their arguments.  Such reasoning processes, which use form to assess content, are called epideictic, as are arguments which draw attention to their own style. 

Advertising provides many examples of epideictic arguments, particularly in cultures where the intended target audience is savvy regarding the form of advertisements.  In Britain, for instance, the film director Michael Winner starred in a series of TV advertisements for an insurance company in which the actors pretending to be real people giving endorsements revealed that they were just actors, pretending to be real people giving endorsements.   This was a glimpse behind the curtain of theatrical artiface, with the actors themselves pulling back the curtain.  Why do this?  Well, self-reference only works with a knowledgeable audience, perhaps so knowledgeable that they have even grown cynical with the claims of advertisers.   By winking at the audience, the advertisers are colluding with this cynicism, saying to the audience, “we know you think this and we agree, so our advert is pitched to you, you cynical sophisticates, not to those others who don’t get it.”

The world-weary tone of the narration of Apple’s “Future” series of adverts here is another example of advertisements which knowingly direct our attention to their own style.

Apple Future Advertisement - Robots

And Dr Barack and Dr John?  One argument against electing Senator Obama to the US Presidency was that he lacked executive experience.  A counter-argument, made even by the good Senator Obama himself, was that he demonstrated his executive capabilities through the competence, professionalism and effectiveness of his management of his own campaign.   This is an epideictic argument.

There is nothing necessarily irrational or fallacious about such arguments or such modes of reasoning; indeed, it is often the case that the only relevant information available for a decision on a claim of substantive content is the form of the claim.   Experienced investors in hi-tech start-ups, for example, know that the business plan they are presented with is most unlikely to be implemented, because the world changes too fast and too radically for any plan to endure.   A key factor in the decision to invest must therefore be an assessment of the capability of the management team to adjust the business plan to changing circumstances, from recognizing that circumstances have in fact changed, to acting quickly and effectively in response, through to evaluating the outcomes.   How to assess this capability for decision-making robustness?  Well, one basis is the past experience of the team.  But experience may well hinder managerial flexibility rather than facilitate it, expecially in a turbulent environment.  Another way to assess this capability is to subject the team to a stress test - contesting the assumptions and reasoning of the business plan, being unreasonable in questions and challenges, prodding and poking and provoking the team to see how well and how quickly they can respond, in real time, without preparation.   In all of this, a decision on the substance of the investment is being made from evidence about the form — about how well the management team responds to such stress testing.   This is perfectly ratonal, given the absence of any other basis on which to make a decision and given our imperfect knowledge of the future.

Likewise, an assessment of Senator Obama’s capabilities for high managerial office on the basis of his competence at managing his campaign was also eminently rational and perfectly justifiable.   The incoherent nature of Senator McCain’s campaign and the panic-struck and erratic manner in which he responded to suprising events (such as the financial crisis of September 2008) was similarly an indication of his likely style of government; the style here did not produce confidence in the content.  For many people,  the choice between candidates in the US Presidential campaign was an epideictic one.

Refs and Acks

The medical example is due to William Rehg.

William Rehg [1997]: Reason and rhetoric in Habermas’s theory of argumentation,  pp. 358-377 in:  W. Jost and M. J. Hyde (Editors): Rhetoric and Hermeneutics in Our Time: A Reader. New Haven, CN, USA: Yale University Press.

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Why vote?

Published
by
Peter
on 02/11/2008
in Anthropology, Culture, Decision theory and economics
. 0 Comments

Someone once joked that economists are people who see something working in practice, and then wonder if it will also work in theory.   One practice that mainstream economists have long failed to explain theoretically is voting.    Following the (so-called) rational choice models of Arrow and Downs, they calculate the likely net monetary benefit of voting to an individual voter, and compare that to the likely net costs to the voter.  With long queues due to inadequately-resourced or incompetently-managed voting administrations (such as those in many US states), these costs can be considerable.  Since one vote is very unlikely to have any marginal consequences, economists are stumped as to why any person votes.  

One explanation for voting, of course, is that voters are indeed feeble-minded or irrational, unable to calculate the costs and benefits themselves, or, if they can, unable to act in their own self-interest.   This is the standard explanation, and it strikes me as morally reprehensible:  a failure to explain or model some phenomenon theoretically is justified on the grounds that the phenomenon should not exist.

Another explanation for voting may be that the rational-choice models understate the benefits or overstate the costs to individuals of voting.   Some economists, as if in a parody of themselves, have now  - in 2008!  - discovered altruism.  Factor in the benefits to others,  this study claims, and the balance of benefits to costs may move more in favour of benefits.

A third explanation for voting may be that rational-choice models are simply inappropriate to the phenomena under study.  The rational choice model assumes that citizens in a democracy are passive consumers of political ideas and proposals, with their only action being the selection of representatives at election times.   Since at least the English Peasants’ Revolt of 1381, this quaint notion of a passive citizenry has been rebutted repeatedly by direct political action by citizens.  The most famous example, of course, was the uprising against colonial taxation known as the American War of Independence, which, one imagines, some economist or two may have heard speak of.   There’s also the various revolutions and uprisings of 1789, 1791, 1848, 1854, 1871, 1905, 1910, 1917, 1926, 1949, 1953, 1956, 1968 and 1989, just to list the most important since economics began to be studied systematically.

An historically-informed observer would surely conclude that a model of voting in which citizens produce as well as consume political ideas is likely to have more calibrative traction than one in which citizens do nothing except (if they so choose) vote.   Such a theory already exists in political science, where it goes under the name of deliberative democracy.   One wonders what terrors would strike the earth were an economist to read the relevant literature before modeling some domain.

People vote not only out of their own self-interest (if they ever do that), but also to influence the direction of their country, to act in solidarity with others, to elect to join a group, to demonstrate membership of a group, to respond to peer pressure, because they law requires they do, or to exercise a hard-won civil right.  Only a person with no sense of history - an economist, say - would fail to understand the importance - indeed, the extreme rationality - of this last factor, especially during a year when a major political party has nominated a black candidate for President of the USA, and the other party a woman for Veep.  At the founding of the USA, neither candidate would have been allowed to vote.

Not for the first time, mainstream economics has ignored social structures and processes when studying social phenomena, focusing only on those factors which can be assigned to an individual (indeed, some idealized, self-interested, dessicated calculating machine) and, within these, only on factors able to be quantified.   The big question here is not why people vote, which is obvious, but why economists seem unable to recognize social structures and processes which can be clearly seen by most everyone else.  What is it about mainstream economists that makes them autistic in this regard?   Do they simply have an under-supply of inter-personal intelligence, unable to empathize with or reason about others?

Refs and Acks:

Hat-tip to Normblog. 

Kenneth J. Arrow [1951]: Social Choice and Individual Values. New York City, NY, USA: Wiley.

J. Bessette [1980]: “Deliberative Democracy: The majority principle in republican government”,  pp. 102-116, in: R. A. Goldwin and W. A. Schambra (Editors): How Democratic is the Constitution? Washington, DC, USA: American Enterprise Institute.

James Bohman and William Rehg (Editors) [1997]: Deliberative Democracy:  Essays on Reason and Politics.  Cambridge, MA, USA: MIT Press.

Anthony Downs [1957]: An Economic Theory of Democracy. New York City, NY, USA: Harper and Row.

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Perceptions and counter-perceptions

Published
by
Peter
on 22/10/2008
in Decision theory, Intelligence and Prophecy
. 1 Comment

The recent death of Yuri Nosenko allows me to continue an intelligence arc in these posts.  What is the connection to marketing, I hear you cry!  Well, marketing is about the organized creation and management of perceptions, which could also be a definition of secret intelligence activities.  In any case, the two disciplines have many overlaps, including some coincident goals and some similar methods, which I intend to explore on this blog.

First, let us focus on Nosenko.   He presented himself in Geneva in 1961 to CIA as an agent of KGB willing to spy for the Americans, and then defected to the USA in 1964.  Among other infornation, he came bearing a firm denial that the USSR had had anything to do with the assassination of John F. Kennedy in November 1963.   JFK’s alleged assassin, Lee Harvey Oswald, was, after all, one of the very few (perhaps under 1000) people who had defected from the USA to the USSR between 1945 and 1963, and one of the even fewer (perhaps under 50) people who had defected back again.  Nosenko claimed to have read Oswald’s KGB file.

From the start, lots of doubts arose regarding Nosenko’s testimony.   He did not seem to know his way around KGB headquarters, his testimony contradicted other information which CIA knew, there were  internal inconsistences in his story, and he cast serious aspersions on an earlier defector from KGB to CIA, claiming him to be a KGB plant.   Was Nosenko, then, a KGB plant or was he the genuine defector?   Within CIA the battle waged throughout the 1960s, with first the sceptics of Nosenko and then subsequently the believers in his bona fides holding sway.  Chief among the sceptics was James J. Angleton, who came to see conspiracies everywhere, and who was eventually fired from CIA for his paranoia.   (Robert De Niro’s film “The Good Shepherd” is based on the life of Angleton, with Matt Damon taking this part, and features a character based on Nosenko.)  Finally, CIA decided officially to believe Nosenko, and he was placed in a protection programme.  He was even asked to give lectures to new CIA recruits on the practices of KGB, such was his apparent acceptance by the organization. 

This final position so angered one of the protagonists, Tennent Bagley, that, 40 years later, he has written a book arguing the case for Nosenko being a KGB plant who duped CIA.   The book is very compelling, and I find myself very much inclined to the sceptic case.   However, one last mirror is missing from Bagley’s hall.   What if the top-most levels of CIA really did doubt that Nosenko was genuine?    Would it not be better for CIA to not let KGB know this?  In other words, if your enemy tries to dupe you, and you realise that it what they are trying to do, is it not generally better to let them think they have succeeded, if you can?    Certainly, more information (about their methods and plans, about their agents, about their knowledge) may potentially be gained from them if you manage to convince them that they have indeed duped you.  All you lose is - perhaps - some pride. 

Moreover, in this case, the dupe arrives bearing a message about the JFK assassination.   For many and various reasons (not all of them necessarily conspiratorial), CIA may have been keen to accept the proposition that KGB were not involved in JFK’s assassination.   How do you convince KGB that you believe this particular message if you don’t believe the messenger is genuine?   So, also for pragmatic reasons, the top levels of CIA may have decided to act in a way which would lead (they hoped) to KGB thinking that their ruse had worked.

How then to convince KGB that their plant, Nosenko, was believed by CIA to be for real?  Simply accepting him as such would be too obvious — even KGB would know that his story had holes and would not believe that a quick acceptance by CIA was genuine.   Better, rather, for CIA to argue internally, at length and in detail, back-and-forth-and-forth-and-back, about the question, and then, finally, in great pain and after much disruption, decide to believe in the defector.   Bagley either does not understand this last mirror (something I sincerely doubt, since his book evidences a fine mind and very keen understanding of perception management), or else perhaps his book is itself part of a plan to convince KGB that Nosenko was fully believed by CIA.  

 

References:

Tennent H. Bagley [2007]: Spy Wars: Moles, Mysteries, and Deadly Games.  New Haven, CT: Yale University Press.

Robert De Niro, Director [2006]:  The Good Shepherd. Universal Pictures.

Tim Weiner [ 2007]:  Legacy of Ashes: The History of the CIA.  Doubelday.

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Putting the “Tea” in IT

Published
by
Peter
on 16/07/2008
in Computer technology, Decision theory, Lead users and marketing strategy
. 0 Comments

One of the key ideas in the marketing of high-tech products is due to Eric von Hippel of the MIT Sloan School, the idea that lead users often anticipate applications of new technologies before the market as a whole, and even before inventors and suppliers. This is because lead users have pressing or important problems for which they seek solutions, and turn to whatever technologies they can find to respond to their problems.

A good example is shown by the history of Information Technology. The company which pioneered business applications of the new computer technology in the early 1950s was not a computer hardware manufacturer nor even an electronic engineering firm, but a lead user, Lyons Tea Shops, a nationwide British chain of tea-and-cake shops. Lyons specified, designed, built, deployed and operated their own computers, under the name of Leo (Lyons Electronic Office). Lyons, through Leo, was also the first to conceive and deploy many of the business applications which we now take for granted, such as automated payroll systems and logistics management systems. One of the leaders in that effort, David Caminer, has recently died at the age of 92. LEO was later part of ICL, itself later purchased by Fujitsu.

This post is intended to honour David Caminer, as a pioneer of automated business decision-making.

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Banking on Linda

Published
by
Peter
on 28/06/2008
in Decision theory, Probability theory and Uncertainty
. 3 Comments

Over at “This Blog Sits”, Grant McCracken has a nice post about a paradigm example often used in mainstream economics to chastise everyday human reasoners. A nice discussion has developed. I thought to re-post one of my comments, which I do here:

“The first point — which should be obvious to anyone who deals professionally with probability, but often seems not — is that the answer to a problem involving uncertainty depends very crucially on its mathematical formulation. We are given a situation expressed in ordinary English words and asked to use it to make a judgement. The probability theorists have arrived at a way of translating such situations from natural human language into a formal mathematical language, and using this formalism, to arrive at an answer to the situation which they deem correct. However, natural language may be imprecise (as in the example, as gek notes). Imprecision of natural language is a key reason for attempting a translation into a formal language, since doing so can clarify what is vague or ambiguous. But imprecision also means that there may be more than one reasonable translation of the same problem situation, even if we all agreed on what formal language to use and on how to do the translation. There may in fact be more than one correct answer.

There is much of background relevance here that may not be known to everyone, First, note that it took about 250 years from the first mathematical formulations of uncertainty using probability (in the 1660s) to reach a sort-of consensus on a set of mathematical axioms for probability theory (the standard axioms, due to Andrei Kolmogorov, in the 1920s). By contrast, the Second, even now, the Kolmogorov axioms are not uncontested. Although it often comes as a suprise to statisticians and mathematicians, there is a whole community of intelligent, mathematically-adept, people in Artificial Intelligence who prefer to use alternative formalisms to probability theory, at least for some problem domains. These alternatives (such as Dempster-Shafer theory and possibility theory) are preferred to probability theory because they more are expressive (more situations can be adequately represented) and because they are easier to manipulate for some types of problems than probability theory. Let no one believe, then, that probability theory is accepted by every mathematically-adept expert who works with uncertainty. Historical aside: In fact, ever since the 1660s, there has been a consistent minority of people dissenting from the standard view of probability theory, a minority which has mostly been erased from the textbooks. Typically, these dissidents have tried unsuccessfully to apply probability theory to real-world problems, such as those encountered by judges and juries (eg, Leibniz in the 17th century), doctors (eg, von Kries in the 19th), business investors (eg, Shackle in the 20th), and now intelligent computer systems (since the 1970s). One can have an entire university education in mathematical statistics, as I did, and never hear mention of this dissenting stream. A science that was confident of its own foundations would surely not need to suppress alternative views. Third, intelligent, expert, mathematically-adept people who work with uncertainty do not even yet agree on what the notion of “probability” means, or to what it may validly apply. Donald Gillies, a professor of philosophy at the University of London, wrote a nice book called, “Philosophical Theories of Probability” (Routledge, London, 2000), which outlines the main alternative interpretations. A key difference of opinion concerns the scope of probability expressions (eg, over which types of natural language statements may one validly apply the translation mechanism). Note that Gillies wrote his book 70-some years after Kolmogorov’s axioms. In addition, there are other social or cultural factors, usually ignored by mathematically-adept experts, which may inform one’s interpretations of uncertainty and probability. A view that the universe is deterministic, or that one’s spiritual fate is pre-determined before birth, may be inconsistent with any of these interpretations of uncertainty, for instance. I have yet to see a Taoist theory of uncertainty, but I am sure it would differ from anything developed so far. I write this comment to give some context to our discussion. Mainstream economists and statisticians are fond of castigating ordinary people for being confused or for acting irrationally when faced with situations involving uncertainty, merely because the judgements of ordinary people do not always conform to the Kolmogorov axioms and the deductive consequences of these axioms. It is surely unreasonable to cast such aspersions when experts themselves disagree on what probability is, to what statements probabilities may be validly applied, and on how uncertainty should be formally represented.”

differential calculus, invented about the same time, was already rigorously formalized by the mid-19th century. Dealing formally with uncertainty is hard, and intuitions differ greatly, even for the mathematically adept.

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Macro-economic models

Published
by
Peter
on 13/05/2008
in Decision theory, Forecasting and economics
. 0 Comments

The New Zealand-born economist, Bill Philiips, is best known for identifying an empirical relationship between a country’s inflation rate and its unemployment, the so-called Phillips curve.  However, before becoming an economist, Phillips had been an engineer, and in 1949 he built one of the first models of a national economy, the MONIAC.  MONIAC used flows of coloured water to represent money flows through an economy, and perhaps explains (or is a reflection of) traditional economics’ obsession with distinguishing stocks from flows.  

In the 1970s, the Australian cartoonist Bruce Petty also built a physical model of a national economy, but this time with seats for several human operators, each representing The Government, The Unions, Big Business, etc.   Instead of the hydraulic flows used by Phillips, Petty’s model used mechanical levers and pulleys, which impacted in convoluted ways on the machine and on the other operators.   This model looked something built by Heath Robinson or Rube Goldberg, and was immense fun to watch it at work.   I’ve not yet been able to find a video of Petty’s model at work.

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Sexapedalianism

Published
by
Peter
on 13/04/2008
in Culture, Decision theory, Forecasting and economics
. 0 Comments

Statistician Dennis Lindley wrote a book called “Making Decisions” which included the stunningly-arrogant sentence: “The main conclusion [of this book] is that there is essentially only one way to reach a decision sensibly.” He justifies this outrageous claim, contrary to all human experience and a moment’s reflection, by saying that, “any deviation from the precepts is liable to lead the decision-maker into procedures which are demonstrably absurd — or as we shall say, incoherent.” (page vii, second edition, 1985). There follows an account of maximum-expected utility decision theory, which is justified in the standard way using Dutch Book arguments (considerations of certain infinite gambles).

I have never trusted these Dutch Book arguments, first because we all live in a finite world, and so games in which one party is guaranteed to win after an infinitely-large time strike as games selling pie-in-the-sky. Everyone is rich eventually when investing in a Ponzi scheme, also. And second, gambling is such a socially- and culturally-embedded practice that I cannot possibly conceive how it could be used to justify decision-making procedures claiming universal validity. (For a start, to gamble you need to believe that events in the universe are not pre-determined, something which perhaps half of humanity does not currently believe.) The statistician Cosma Shalizi over at Three-Toed Sloth has a nice parody of the advice of decision-theory ideologues here:

A: Hey, you over there, the one walking! You’re doing it wrong.
B: Excuse me?
A: You’re only using two feet! You should keep at least three of your six in contact with the ground at all times.
B: …
A: Look, it’s easily proved that’s the optimal way to walk. Otherwise you’d be unstable, and if you were walking past a Dutchman he could kick one of your legs with his clogs and knock you over and then lecture you on how to make pancakes.
B: What? Why a Dutchman?
A: You can’t trust the Dutch, they’re everywhere! Besides, every time you walk it’s really just like running the gauntlet at Schiphol.
B: It is?
A: Don’t change the subject! Walking like that you’re actually sessile!
B: I don’t seem to be rooted in place…
A: It’s a technical term. Look, it’s very simple, these are all implications of the axioms of the theory of optimal walking and you’re breaking them all. I can’t get over how immobile you are, walking like that.
B: “Immobile”?
A: Well, you’re not walking properly, are you?

B: Your theory seems to assume I have six legs.
A: Yes, exactly!
B: I only have two legs. It doesn’t describe what I do at all.
A: It’s a normative theory.
B: For something with six legs.
A: Yes.
B: I have two legs. Does your theory have any advice about how to walk on two legs?
A: Could you try crawling on your hands and knees?

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