Archive for the 'Decision theory' Category

cod-Bourbakism

Economic historians Philip Mirowski and Edward Nik-Khah have published a new book on the role of information in post-war economics.    The introductory chapter contains a nice, high-level summary of the failures of the standard model of decision-making in mainstream micro Economics, Maximum Expected Utility Theory or so-called rational choice theory.  Because the MEU model continues to dominate academic economics despite working neither in practice nor in theory, I have written about it often before, for example herehere and here.  Listen to Mirowski and Nik-Khah:
Given the massive literature on so-called rationality in the social sciences, it gives one pause to observe what a dark palimpsest the annals of rational choice has become. The modern economist, who avoids philosophy and psychology as the couch potato avoids the gym, has almost no appreciation for the rich archive of paradoxes of rationality. This has come to pass primarily by insisting upon a distinctly peculiar template as the necessary starting point of all discussion, at least from the 1950s onwards. Neoclassical economists frequently characterize their schema as comprising three components: (a) a consistent well-behaved preference ordering reflecting the mindset of some individual; (b) the axiomatic method employed to describe mental manipulations of (a) as comprising the definition of “rational choice”; and (c) reduction of all social phenomena to be attributed to the activities of individual agents applying (b) to (a). These three components may be referred to in shorthand as: “utility” functions, formal axiomatic definitions (including maximization provisions and consistency restrictions), and some species of methodological individualism.
The immediate response is to marvel at how anyone could have confused this extraordinary contraption with the lush forest of human rationality, however loosely defined. Start with component (a). The preexistence of an inviolate preference order rules out of bounds most phenomena of learning, as well as the simplest and most commonplace of human experiences—that feeling of changing one’s mind. The obstacles that this doctrine pose for problems of the treatment of information turns out to be central to our historical account. People have been frequently known to make personally “inconsistent” evaluations of events both observed and unobserved; yet in rational choice theory, committing such a solecism is the only real mortal sin—one that gets you harshly punished at minimum and summarily drummed out of the realm of the rational in the final analysis. Now, let’s contemplate component (b). That dogma insists the best way to enshrine rationality is by mimicking a formal axiomatic system—as if that were some sterling bulwark against human frailty and oblique hidden flaws of hubris. One would have thought Gödel’s Theorem might have chilled the enthusiasm for this format, but curiously, the opposite happened instead. Every rational man within this tradition is therefore presupposed to conform to his own impregnable axiom system—something that comes pre-loaded, like Microsoft on a laptop. This cod-Bourbakism ruled out many further phenomena that one might otherwise innocently call “rational”: an experimental or pragmatic stance toward the world; a life where one understands prudence as behaving different ways (meaning different “rationalities”) in different contexts; a self-conception predicated on the possibility that much personal knowledge is embodied, tacit, inarticulate, and heavily emotion driven.  Furthermore, it strangely banishes many computational approaches to cognition: for instance, it simply elides the fact that much algorithmic inference can be shown to be noncomputable in practice; or a somewhat less daunting proposition, that it is intractable in terms of the time and resources required to carry it out. The “information revolution” in economics primarily consisted of the development of Rube Goldberg–type contraptions to nominally get around these implications. Finally, contemplate component (c): complaints about methodological individualism are so drearily commonplace in history that it would be tedious to reproduce them here. Suffice it to say that (c) simply denies the very existence of social cognition in its many manifestations as deserving of the honorific “rational.”
There is nothing new about any of these observations. Veblen’s famous quote summed them up more than a century ago: “The hedonistic conception of man is that of a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact.”  The roster of latter-day dissenters is equally illustrious, from Herbert Simon to Amartya Sen to Gerd Gigerenzer, if none perhaps is quite up to his snuff in stylish prose or withering skepticism. It is commonplace to note just how ineffectual their dissent has been in changing modern economic practice.
Why anyone would come to mistake this virtual system of billiard balls careening across the baize as capturing the white-hot conviction of rationality in human life is a question worthy of a few years of hard work by competent intellectual historians; but that does not seem to be what we have been bequeathed. In its place sits the work of (mostly) historians of economics and a few historians of science treating these three components of rationality as if they were more or less patently obvious, while scouring over fine points of dispute concerning the formalisms involved, and in particular, an inordinate fascination for rival treatments of probability theory within that framework. We get histories of ordinal versus cardinal utility, game theory, “behavioral” peccadillos, preferences versus “capacities,” social choice theory, experimental interventions, causal versus evidential decision theory, formalized management theory, and so forth, all situated within a larger framework of the inexorable rise of neoclassical economics. Historians treat components (a–c) as if they were the obvious touchstone of any further research, the alpha and omega of what it means to be “rational.” Everything that comes after this is just a working out of details or a cleaning up of minor glitches. If and when this “rational choice” complex is observed taking root within political science, sociology, biology, or some precincts of psychology, it is often treated as though it had “migrated” intact from the economists’ citadel. If that option is declined, then instead it is intimated that “science” and the “mathematical tools” made the figures in question revert to certain stereotypic caricatures of rationality.” [Mirowski and Nik-Khah 2017, locations 318-379 of the Kindle edition].

Reference:

Philip Mirowski and Edward Nik-Khah [2017]: The Knowledge We Have Lost in Information: The History of Information in Modern Economics. Oxford, UK: Oxford University Press.




Gleichgewichtzustandwiederherstellungsmoeglichkeit

Gleichgewichtzustandwiederherstellungsmoeglichkeit (German, noun):   The possibility of re-establishing a condition of equilibrium.




High Velocity Decision-Making

Amazon’s Jeff Bezos on decision making, in his 2016 Annual Letter to shareholders:

Day 2 companies make high-quality decisions, but they make high-quality decisions slowly. To keep the energy and dynamism of Day 1, you have to somehow make high-quality, high-velocity decisions. Easy for start-ups and very challenging for large organizations. The senior team at Amazon is determined to keep our decision-making velocity high. Speed matters in business – plus a high-velocity decision making environment is more fun too. We don’t know all the answers, but here are some thoughts.

First, never use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. Those decisions can use a light-weight process. For those, so what if you’re wrong? I wrote about this in more detail in last year’s letter.

Second, most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow. Plus, either way, you need to be good at quickly recognizing and correcting bad decisions. If you’re good at course correcting, being wrong may be less costly than you think, whereas being slow is going to be expensive for sure.

Third, use the phrase “disagree and commit.” This phrase will save a lot of time. If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.

This isn’t one way. If you’re the boss, you should do this too. I disagree and commit all the time. We recently greenlit a particular Amazon Studios original. I told the team my view: debatable whether it would be interesting enough, complicated to produce, the business terms aren’t that good, and we have lots of other opportunities.They had a completely different opinion and wanted to go ahead. I wrote back right away with “I disagree and commit and hope it becomes the most watched thing we’ve ever made.” Consider how much slower this decision cycle would have been if the team had actually had to convince me rather than simply get my commitment.

Note what this example is not: it’s not me thinking to myself “well, these guys are wrong and missing the point,but this isn’t worth me chasing.” It’s a genuine disagreement of opinion, a candid expression of my view, achance for the team to weigh my view, and a quick, sincere commitment to go their way. And given that this team has already brought home 11 Emmys, 6 Golden Globes, and 3 Oscars, I’m just glad they let me in the roomat all!

Fourth, recognize true misalignment issues early and escalate them immediately.  Sometimes teams have different objectives and fundamentally different views. They are not aligned. No amount of discussion, no number of meetings will resolve that deep misalignment. Without escalation, the default dispute resolution mechanism for this scenario is exhaustion. Whoever has more stamina carries the decision.

I’ve seen many examples of sincere misalignment at Amazon over the years. When we decided to invite third party sellers to compete directly against us on our own product detail pages – that was a big one. Many smart,well-intentioned Amazonians were simply not at all aligned with the direction. The big decision set up hundreds of smaller decisions, many of which needed to be escalated to the senior team.

“You’ve worn me down” is an awful decision-making process. It’s slow and de-energizing. Go for quick escalation instead – it’s better.

So, have you settled only for decision quality, or are you mindful of decision velocity too? Are the world’s trends tailwinds for you? Are you falling prey to proxies, or do they serve you? And most important of all, are you delighting customers? We can have the scope and capabilities of a large company and the spirit and heart of a small one. But we have to choose it.”




Courage, honour, valour

For as long as I can remember, I have had to endure lectures from men in uniforms – policemen, soldiers, teachers, clerics – about courage and honour.  I recall a particular egregious lecture from a cleric on the cowardice of men who had long hair. (For next millennium readers, this was part of a larger argument accusing anyone not supporting US and Australian involvement in the second Indo-Chinese war of cowardice.  Of course, it required great courage for a 17-year-old conscript to openly confront such logically specious, and morally tendentious, nonsense.)   The forces of conservatism always accuse those who confront them of cowardice, it seems.

The Hillsborough coronial verdict shows just what true courage and valour and honour are:  It is fighting for justice against all odds, against the overwhelming sentiment of those in authority and of society in general, against friend and peer, as well as journalist and foe, against recalcitrant judges and lying policemen.  But courage is also admitting when one has made a poor decision, and bravely facing the consequences of that decision.  South Yorkshire police have spent 27 years and millions of pounds lying about what they did at the stadium before and on and after that day, and lying about who was responsible, and maligning the dead and their families.  It is not too late for these men in uniform to finally reveal some courage and accept the consequences of their negligence, their lack of preparation, and their poor judgment.  For valour and honour, however, they lost any opportunity to show those long ago.




Vienna life

IAEA-Vienna




Just do it, already, Mr Prez!

Norm Ornstein in The Atlantic on criticisms of Bam that he’s not as good at cajoling and arm-twisting as was LBJ, not as good at shooting-the-breeze as was Clinton, and not as good at hard-ball negotiation as was Reagan.   An excerpt:

But there was one downside: the reactivation of one of the most enduring memes and myths about the presidency, and especially the Obama presidency. Like Rasputin (or Whac-A-Mole,) it keeps coming back even after it has been bludgeoned and obliterated by facts and logic. I feel compelled to whack this mole once more.

The meme is what Matthew Yglesias, writing in 2006, referred to as “the Green Lantern Theory of Geopolitics,” and has been refined by Greg Sargent and Brendan Nyhan into the Green Lantern Theory of the presidency. In a nutshell, it attributes heroic powers to a president—if only he would use them. And the holders of this theory have turned it into the meme that if only Obama used his power of persuasion, he could have the kind of success that LBJ enjoyed with the Great Society, that Bill Clinton enjoyed in his alliance with Newt Gingrich that gave us welfare reform and fiscal success, that Ronald Reagan had with Dan Rostenkowski and Bill Bradley to get tax reform, and so on.

If only Obama had dealt with Congress the way LBJ did—persuading, cajoling, threatening, and sweet-talking members to attain his goals—his presidency would not be on the ropes and he would be a hero. If only Obama would schmooze with lawmakers the way Bill Clinton did, he would have much greater success. If only Obama would work with Republicans and not try to steamroll them, he could be a hero and have a fiscal deal that would solve the long-term debt problem.

If only the proponents of this theory would step back and look at the realities of all these presidencies (or would read or reread the Richard Neustadt classic, Presidential Power.)

I do understand the sentiment here and the frustration over the deep dysfunction that has taken over our politics. It is tempting to believe that a president could overcome the tribalism, polarization, and challenges of the permanent campaign, by doing what other presidents did to overcome their challenges. It is not as if passing legislation and making policy was easy in the old days.

But here is the reality, starting with the Johnson presidency. I do not want to denigrate LBJ or downplay his remarkable accomplishments and the courage he displayed in taking on his own base, Southern Democrats, to enact landmark civil-rights and voting-rights laws that have done more to transform America in a positive way than almost anything else in our lifetimes. And it is a fact that the 89th Congress, that of the Great Society, can make the case for having more sweeping accomplishments, from voting rights to Medicare to elementary and secondary education reform, than any other.

LBJ had a lot to do with the agenda, and the accomplishments. But his drive for civil rights was aided in 1964 by having the momentum following John F. Kennedy’s assassination, and the partnership of Republicans Everett Dirksen and Bill McCullough, detailed beautifully in new books by Clay Risen and Todd Purdum. And Johnson was aided substantially in 1965-66 by having swollen majorities of his own party in both chambers of Congress—68 of 100 senators, and 295 House members, more than 2-to-1 margins. While Johnson needed, and got, substantial Republican support on civil rights and voting rights to overcome Southern Democrats’ opposition, he did not get a lot of Republicans supporting the rest of his domestic agenda. He had enough Democrats supporting those policies to ensure passage, and he got enough GOP votes on final passage of key bills to ensure the legitimacy of the actions.

Johnson deserves credit for horse-trading (for example, finding concessions to give to Democrat Wilbur Mills, chairman of the House Ways and Means Committee, to get his support for Medicare), but it was the numbers that made the difference. Consider what happened in the next two years, after the 1966 midterm elections depleted Democratic ranks and enlarged Republican ones. LBJ was still the great master of Congress—but without the votes, the record was anything but robust. All the cajoling and persuading and horse-trading in the world did not matter.

Now briefly consider other presidents. Ronald Reagan was a master negotiator, and he has the distinction of having two major pieces of legislation, tax reform and immigration reform, enacted in his second term, without the overwhelming numbers that Johnson enjoyed in 1965-66. What Reagan did have, just like Johnson had on civil rights, was active and eager partners from the other party. The drive for tax reform did not start with Reagan, but with Democrats Bill Bradley and Dick Gephardt, whose reform bill became the template for the law that ultimately passed. They, and Ways and Means Chairman Dan Rostenkowski, were delighted to make their mark in history (and for Bradley and Gephardt, to advance their presidential ambitions) by working with the lame-duck Republican president. The same desire to craft transformative policy was there for both Alan Simpson and Ron Mazzoli, a Senate Republican and a House Democrat, who put together immigration legislation with limited involvement by the White House.

As for Bill Clinton, he was as politically adept as any president in modern times, and as charismatic and compelling as anyone. But the reality is that these great talents did not convince a single Republican to support his economic plan in 1993, nor enough Democrats to pass the plan for a crucial seven-plus months; did not stop the Republicans under Speaker Newt Gingrich from shutting down the government twice; and did not stop the House toward the end of his presidency from impeaching him on shaky grounds, with no chance of conviction in the Senate. The brief windows of close cooperation in 1996, after Gingrich’s humiliation following the second shutdown, were opened for pragmatic, tactical reasons by Republicans eager to win a second consecutive term in the majority, and ended shortly after they had accomplished that goal.

When Obama had the numbers, not as robust as LBJ’s but robust enough, he had a terrific record of legislative accomplishments. The 111th Congress ranks just below the 89th in terms of significant and far-reaching enactments, from the components of the economic stimulus plan to the health care bill to Dodd/Frank and credit-card reform. But all were done with either no or minimal Republican support. LBJ and Reagan had willing partners from the opposite party; Obama has had none. Nothing that he could have done would have changed the clear, deliberate policy of Republicans uniting to oppose and obstruct his agenda, that altered long-standing Senate norms to use the filibuster in ways it had never been employed before, including in the LBJ, Reagan, and Clinton eras, that drew sharp lines of total opposition on policies like health reform and raising taxes as part of a broad budget deal.

Could Obama have done more to bond with lawmakers? Sure, especially with members of his own party, which would help more now, when he is in the throes of second-term blues, than it would have when he achieved remarkable party unity in his first two years. But the brutal reality, in today’s politics, is that LBJ, if he were here now, could not be the LBJ of the Great Society years in this environment. Nobody can, and to demand otherwise is both futile and foolish.”

 

(HT: SP)




Economic models as fables

PNM-logoDifferent knowledge disciplines mean different things by the verb “to understand”.   For economists and physicists, a domain or a problem is not understood unless and until it is modeled, and often only by a particular type of model.    For most economists, for instance, agent-based models do not provide understanding, because they only show sufficient and not necessary conclusions.    For mechanical engineers, understanding usually only comes from a physical prototype.  For computer programmers, understanding happens through and with the writing of a software programme for the problem.  For legal scholars, it arises with and from the writing of a narrative text reflecting on the problem and its issues.

Here is economist and game theorist Ariel Rubinstein on models in economics:

Continue reading ‘Economic models as fables’




Bateson on rationality

Mere purposive rationality unaided by such phenomena as art, religion, dream and the like, is necessarily pathogenic and destructive of life; and  . . . its virulence springs specifically from the circumstance that life depends upon interlocking circuits of contingency, while consciousness can see only such short arcs of such circuits as human purpose may direct.”

Gregory Bateson [1972]: “Style, Grace and Information in Primitive Art.”  Page 146 in: Steps to an Ecology of Mind. New York, NY: Ballentine Books.

George Santayana said something similar in his Sonnet III:

It is not wisdom to be only wise,
And on the inward vision close the eyes,
But it is wisdom to believe the heart.




The Way

A recurring theme here has been the complexity of most important real-world decision-making, contrary to the models used in much of economics and computer science.   Some relevant posts are here, here, and here.    On this topic, I recently came across a wonderful cartoon by Michael Leunig, entitled “The Way” (click on the image to enlarge it):

Michael-Leunig-The-Way-2012

I am very grateful to Michael Leunig for permission to reproduce this cartoon here.




Julia Gillard as manager

A description of former Australian PM Julia Gillard’s parliamentary and office management style, by former staffer Nicholas Reece:

Gillard is one of the best close-quarters politicians the Federal Parliament has ever seen.

As prime minister, she ran a disciplined, professional office that operated in much the same way as a well-run law firm – a product of her early career at Slater & Gordon.

Cabinet process was strictly upheld and the massive flow of administrative and policy paperwork that moves between government departments, the prime minister’s office and the prime minister’s desk was dealt with efficiently.

There was courtesy shown to staff, MPs, public servants and stakeholders – every person entitled to a view was given a chance to express it before a decision was made.

Gillard would diligently work her way through the detail of an issue and then patiently execute an agreed plan to tackle it.

She was generous with her time and did not rush people in the way busy leaders often do. She was never rude and never raised her voice, unless for humorous purposes.

She had a quick mind and could master a brief at lightning speed. She was a masterful parliamentary tactician and a brilliant analyst of the day’s events and the politics of the Labor caucus. She was a genuinely affectionate person and had a quick wit that could be deployed to lift the spirits of those around her.

At her instigation, birthdays were the subject of office celebration. This would involve Gillard turning up for cake and delivering a very personal speech to even the most junior staff.

Significantly for a national leader, Gillard had no major personality defects. She is probably the most normal, down-to-earth person to have served as prime minister of Australia in the modern era.

In a crisis, she was supremely calm. While others wilted, Gillard had a resilience that allowed her to keep stepping up to the plate.

She was good at remembering people’s names, knowing their story, understanding their motivations and being able to see a situation from another’s perspective.

These were attributes that were very well suited to the fraught circumstances of the 43rd Parliament.

In the negotiations with the crossbench MPs to form government, Gillard easily outmanoeuvred Tony Abbott. She better understood the independents’ motivations – she focused on the detail of how the relationship between government and the crossbenches would work and committed to serving the full term.

The achievements include: the national broadband network, putting a price on carbon, education reform, children’s dental care and the national disability insurance scheme.

In federal-state relations, there was the negotiation of health reform with the conservative premiers and in foreign affairs there was a strengthening of relations with our major partners, particularly China and the US.

Against this backdrop, it is not surprising that Gillard was well-liked, even loved, among her staff, the public service and most of her caucus.”