decision making

Here are articles on decision making

Meritocracy: A Fine, But Mythological, Idea

I love the idea of a meritocracy! It’s a glorious myth that makes a wonderful story. But if you look at how resources, wealth, prestige, etc. get distributed, it’s very hard to make a case for meritocracy.

It’s no surprise we believe in meritocracy. We spend our entire first 18-25 conscious years in school. School is a true meritocracy. The more you work at mastering the material, the more you earn good grades. I don’t know about you, but school was the last meritocracy I had the privilege to enjoy.

At my very first job out of college, I was told, “You do the best job of anyone here, but you’re too young to be making any more money.” Sadly, I persisted in thinking that doing a good job was the way to get what I wanted out of life. I still think that way in my gut, even though I continue to see little evidence of it.

Many very successful people talk a lot about meritocracy and how they just worked hard to succeed. That’s all fine and good, but they’re looking at only their own story. They’re not looking at the vast majority of people in the world who work very, very hard, and don’t get rewarded nearly as well. I’ve also noticed that the people who are highly successful/rewarded/prestigious have a tremendously powerful psychological vested interest in believing in and trumpeting the idea of meritocracy. Otherwise they would have to confront the idea that maybe they don’t deserve all that money/power/fame, and it simply came to them because they were born to the right parents, or were in the right place at the right time.

In capitalism, we give the bulk of the value created by an enterprise to the owners. It’s far better to own 50% of the equity in a successful company that you left 6 months after founding it than to work your ass off for 12 years making that same company a success, but working on salary. What matters as far as material reward isn’t the work/merit, but the capital and ownership structure. (That’s a true story, by the way. The company founder never worked again. The employees, while doing reasonably well, are still working at the same or other companies to earn their daily bread.)

If you want to do a good job, by all means, do it. Personally, I like to be proud of my work, and I strive to do the very best. But don’t confuse that with getting what you want. When you’re designing your life, remember that producing good work may be something you do for the psychic and self-esteem rewards. When you’re going after other rewards, say, money, be as clear-headed as you can about what will help you reach that result. Hard work and skill may not have anything to do with living the kind of life you want.

Your little voice may give you better advice than you know.

Have you ever wondered how certain corrupt businesspeople can keep spouting great, moral words while doing the exact opposite in their behavior? You wonder how they can wax eloquent about the need to give customers high-quality products while they happily substitute inferior quality raw materials to save costs. You wonder: are they insane? Probably not. Yes, they hear voices in their head. But we all do that. The problem is that they’re listening to the wrong ones.

In a New York Times article today, John Tierney discusses the science behind hypocrisy and how we fool ourselves. It seems when we distract our conscious mind, we listen mainly to our “gut” (or our “heart,” depending on how poetic an image you prefer), and we know when we’re doing The Wrong Thing. When our conscious minds are free, however, we use them—to self-justify. When we engage in hypocritical or anti-social behavior, our conscious mind goes to work creating justifications so we believe we’re doing the right thing, even when we aren’t.

In the past several years, I’ve become more aware of my own “heart voice.” When I have a troubling decision to make, or strong ambivalence about a situation, I sit quietly. Actually, my brain is usually shrieking gibberish about how unfair I’m being treated, or about how I don’t deserve what’s happening, or about how I’m an utter and complete failure at life because I missed “9 Down” in today’s New York Times crossword puzzle. So here’s this Shrieking Monster in my head, and I let it rant while putting attention on the middle of my chest. Then when the Shrieking Monster stops to take a breath, I quickly ask, “What should I do in this situation?”

Then I sit. After a few minutes, beneath the Monster comes a little, quiet voice. It’s barely even in words. And it has an answer.

The moment the answer comes, I know it’s the right one for me. It’s almost always the moral thing, the ethical thing, the loving thing, the passionate thing. In some weird way, it’s the answer I already knew was right, but just wouldn’t admit to myself. It took a chat with the Little Voice to bring it to the place where it could be heard over the Shrieking Monster voice.

The Shrieking Monster is the one that usually pushes me to do stupid things. It goads me to yell at people when I’m frustrated, to get petulant and childish when I could be forging alliances, and to beat myself up when I don’t do well, even if I did my best. The Little Voice, though, is my own internal Dear Abby: its advice is excellent, even if its hairstyle could stand some updating.

If you’ve never tried this, give it a shot. Ponder a decision that’s giving you angst. Maybe it’s a word decision. Maybe it involves your Sweetie. Choose a really, really important decision, like: should I pick up the socks myself, or continue screaming at my sweetie for another eight months to pick them up? Sit quietly with the situation. Your Shrieking Monster will helpfully point out how unfair it is that you have to pick up the socks, how much you deserve to have the socks picked up for you, and how you really should break up because of the socks. Then sit quietly and listen to the Little Voice behind the shrieking monster. It just might have some good advice. If it seems reasonable, give it a shot. You might find yourself acting more ethically, more morally, more lovingly, and more happily. In other words, you just may find your little voice is the key to acting as—not just aspiring to be—your Very Best Self.

Find the article on hypocrisy at http://r.steverrobbins.com/hypocrisyarticle.

Who’s surprised by compact car sales? Spotting trends. In advance.

The New York Times reported that sales of smaller compacts and subcompacts are on the rise, now that we’re in a gas crunch. Industry analysts (who are young enough that they don’t remember the 70s) are calling this “a first.”

I tried to tell a friend that we’ve had cars that got 50-60 mpg for at least 30 years. When I was a teenager buying my first car, in the middle of the gas crisis of the 1970s, I was looking at a Honda Civic that was rated at over 50 mpg city. Once the oil shock was over, we went right back to huge, hulking contraptions that get gallons-per-mile instead of miles-per-gallon.

Is there anyone who didn’t see this coming? If so, you’ve never had a milkshake through a straw.

When you’re drinking a milkshake, you’re drinking faster than the milkshake can be replenished. Eventually, no matter what, you’ll get to the end of the milkshake and start slurping noisily. Sadness and despair, no more milkshake. If you knew how fast you were sipping and how much the cup held, you could predict exactly when you’d run out of tasty dairy mouth treat.

The story with oil is a bit more complicated. We don’t know how big the cup is, so we don’t know when we’ll hit bottom. And while one problem is how big the cup is, another problem is that more and more people are trying to suck on the straw at once, and we haven’t known how fast they would all start wanting some of our milkshake. (Warning: metaphor breakdown imminent.)

But the trend is utterly, completely, unambigiously predictable.

Because we don’t know the specific numbers, we can’t predict when oil will become expensive. But we know that it will, and there’s simply no doubt about it. If you jump off the top of a building, you’ll fall. How long you’ll fall depends on the height of the building. If you jump from a very tall building, you might even have enough time to pretend that the ride will go on forever. But eventually, you’ll land. That’s pretty much guaranteed. And you might even survive the landing (heck, Michael Holmes fell from 12,000+ feet without a chute and survived). It seems like a pretty stupid thing to do on purpose, though.

The sub-prime banking crisis was also predictable. All these analysts saying no one could have predicted it should be out of a job. The trends were obvious in a single news article last year. I—a non-finance guy—even blogged about it.

Warren Buffett and Charlie Munger have been watching the rise of complex financial derivatives for years, noting that their accounting conventions allow people to get rich when there’s actually nothing supporting the underlying assets. They’re pretty sure (and I agree) that the derivatives market is headed for a meltdown. We can’t predict when, but we can predict that markets are very good at eventually bringing assets back down to their underlying value.

Humans seem hell-bent on believing what we want to believe and ignoring unambiguous trends until they actually become crisis. There’s a whole field called “system dynamics” that deals with the behavior of complex systems, and more importantly, with the ways people seem to be hard-wired to misunderstand complex systems.

We’re living in an era of complex systems. Growth (and melting ice caps) happens faster than we project. Every year. On the surface, it appears things change, but the underlying trends are remarkably constant.

What are the trends you can predict now, but don’t want to? What are the underlying forces shaping your industry, country, or family that will come home to roost? You may not be able to predict specifics of when, where, or how, but you can predict with near-certainty that they will. And when they do, life will be … interesting.

Some interesting trends with highly uncertain timing, and highly certain momentum:

  • The interest payments on the national debt will continue to grow as a percentage of the national budget. (Think: compounding interest on variable rate loans.)
  • Wealth will continue to concentrate in the hands of a small number of people. (With the tax rate on capital gains less than the tax rate on income, even if everyone makes 10% more each year, the rich will get taxed at a lower rate and keep a greater percentage of the overall pie.
  • We’ll have increasing demand for energy of all forms. (Whether or not our total supply will increase at the same rate or faster seems to be unknown.)
  • We have a generation of people in our workforce pipeline of whom somewhere between a quarter and 40% don’t even have a high school diploma. There are serious societal implications there…
  • Precious and non-precious metals are being steadily mined at a rate greater than the rate at which they’re replaced. (For example, Copper may be finished in 61 years, within the lifetime of some of you reading this article.)

So go out and buy a subcompact. And while you’re planning for retirement, consider that the world may be very different then than it is now. Those differences will be driven by our actions today (and our actions of the last 40 years, when it comes to climate change). Are you taking action today that will set up the trends you want in your old age?

Science has worked so well that superstition now reigns supreme

I grew up in the era of the Apollo moon launches. One of my earliest memories is traveling to Cape Canaveral and watching from the beach as one of the missions was launched towards the moon. It was pretty incredible.

Despite frequent moves and attending six schools between elementary school and college, science was in the air. I got a firm grounding in how to think critically, how to use data, and how to observe the physical world around me in pursuit of Doing Great Things. Whether my school was in a failing Pennsylvania steel town or in a full-on major city, science was present.

Science has given us great things. And therein lies the problem.
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Do you improve your decision quality over time?

In my business blog today, I got a little, er, hot about tax season. In my footnote, I flamed on about the 2004 elections, noting:

One thing I’m sure of: none of you stopped to analyze the quality of your 2004 decision-making and explicitly change the criteria you used to make your bad decision. It may be 2008, but you’re about to use the same broken decision-making process in November and you’ll wonder why politics doesn’t change.

Political flaming aside, when you make a decision that turns out badly, do you explicitly learn from it? And if so, do you use an explicit “post mortem” process? And do you tend to learn about specifics of a situation (e.g. “I’m never voting for candidate Z again because they lie”), or do you actually change your decision-making process (e.g. “next time, I will look at voting records and read news articles on opposing web sites and supporting web sites before making my decision.”)?

Thinking ahead. How far? And how certain?

At a recent physical exam, my weight was a tad above what I want it to be (probably all muscle, but you can never be too sure). So I went web surfing a bit about weight gain trends and found an article proclaiming that obesity is becoming a world-wide problem. It seems the availability of cheap processed foods combined with less physical work is part of the problem.

What amazes me is that both of those are fully and completely under our control. There’s no reason our food companies have to produce food that’s bad for us. But they do, because that’s what we want to buy. Why do we want to buy it? Because our bodies are programmed to love the processed stuff, since back when we evolved, it was really hard to find usable carbohydrates, etc. It worked great on the tundra, but now, it drives us to crave things that create a market that is bad for us.

We weren’t thinking ahead when we developed our food production industry or laying down the rules of the market. We didn’t know. We didn’t look very far into the future, and if we could have, we didn’t have the knowledge or even the suspicion that our food production would have bad dietary consequences. And now, we look increasingly like little round beach balls. I suppose it makes clothes easier to design; all we need is a big circle.

So the question is: when we make decisions, how far ahead do we look? How certain do we have to be of the answers to take action? And what action do we take?

“Scenario planning” was all the rage in the late-80s and early 90s. It seems Shell had use future projections to predict the fall of the Soviet Union and they were all ready to take smart business action when they saw it coming. Which scenarios should we be considering? How likely do we think they are? And when do we decide we should prepare, given that we generally don’t know which scenario we’re living in until it’s too late to take action?

The part of the article I wasn’t expecting was the last two paragraphs, which point out that global warming, overfishing, and climate change could severely disrupt the food supply, even with a “modest” temperature increase of 2 degrees Celsius (and that’s below the lowest-end projections of the MIT climate scientist I asked about it).

So this time, we have the chance to think ahead. Other than speculating in food companies, what can we as businesspeople do to help prepare for something like that? Right now, we stick our heads in the sand and ignore the problem. Last time we did that, we turned into beach balls. This time, let’s think ahead, and not turn into something worse.

How far ahead do you plan?

As I write this, oil prices topped $78. In January of 2005, gas was selling for around $1.75/gallon. Now, it’s over $3.

For any business that depends on transportation or petroleum, we just doubled that line item.

Are you assuming this is a temporary spike, and ignoring it? Are you factoring this into your long-term planning? How long-term? Are you assuming prices will keep rising or will fall?

I’m betting that most people are treating this as a new set level. But the assumptions you make about the future, and the time horizon of those assumptions, will lead you to vastly different conclusions and actions.

So choose wisely. Choose thoughtfully. And it may even make sense to do some scenario analysis, a decision tree or two, and facing unpleasant realities. You might event want to look at data, rather than just thinking wishfully (or pessimistically, for that matter). You might be surprised.

Buggy whip manufacturers got blind-sided when the world shifted to automobiles. Don’t let yourself be blind-sided because you aren’t paying attention to where the world is heading.

Make Your own Luck – a great guide for decision-making under uncertainty

I just finished Make Your Own Luck by Eileen Shapiro and Howard Stevenson. What a great book!

My background is in engineering and science, then business. As an engineer, I really liked that there’s a “right answer.” Or at least, there are clear wrong answers (the bridge will collapse if we make it out of tissue paper, period). In business, things aren’t so easy. Most situations have too many factors to identify, let alone consider deeply. Shareholders interact with managers who interact with technology and customer service people and engineers and operations and … it’s tough to know how to think about all this.

Make Your Own Luck lays out a 12-step process (hmm…) for taking risks. Some of the steps sound simple: Know your big goals before you begin, so when you make bets in your life, you’re betting on what you actually want. Sounds obvious? Yeah, but in my own work with executives, I’ve found that people easily lose sight of their real goals(1). The power from Shapiro and Stevenson’s approach comes from having a rigorous checklist to consider when making risky bets.

Some of their tools help evaluate risks that I’ve never known how to tackle. For example, the authors reject the conventional wisdom that “reward requires risk,” and give us “prediction maps,” a tool for identifying low-risk, high-reward opportunities. Simple, elegant, and practically useful.

Their other big new tool is “uncertainty grids.” Uncertainty grids let you quickly test your plans against combinations of uncertainties to realize whether you’ve unconsciously anchored yourself to a single scenario, or whether your plans can survive multiple uncertain events.

The writing style is fun, with thought experiments between the chapters, a final chapter of scenarios to analyze using the 12 steps, and haiku or other verse at the start of each chapter. I found it a pleasant change from the overly heavy style of most substantive business books, and it was an easy read cover-to-cover that did justice to its excellent content.

I heartily recommend the book. Go check it out!

– Stever

(1) Being a professional, of course, I never, ever lose sight of my own goals. *grin*