Cheap talk and rationality2 August, 2012 at 15:20 | Posted in Economics | 3 Comments
British economist John Kay has a nice piece on decision making on his blog. His main point is that even when we appear to be making rational decisions, we are often actually only looking for ways to justify decisions we have already made:
Benjamin Franklin, a leading figure of the 18th-century enlightenment, advocated a rational approach to decision- making. In a letter to the English chemist Joseph Priestley, Franklin claimed to have found “great advantage” in a process he described as moral or prudential algebra: set out pros and cons, attach weights to each consideration and arrive at a balanced judgment taking all relevant factors into account.
Yet Franklin knew very well that this was not how real people, including himself, behaved. Franklin was an occasional vegetarian, having balanced the moral, nutritional and practical arguments. But confronted with the delicious smell of freshly grilled fish, he observed that the fish themselves disregarded his precepts by eating other fish and so deserved to be eaten. “How convenient it is,” he said, “to be a reasonable creature, since it enables one to make or find a reason for whatever one has a mind to do.”
When we make hiring decisions, or construct risk maps, or undertake investment appraisals we complete templates, the purpose of which is not to help us manage or decide but to rationalise what we already believe we know. At best, these exercises are irrelevant: at worst, our judgments are concealed or distorted by the need to justify them in terms of these formal processes. The – necessary – proliferation of external mechanisms of accountability is associated with an – unnecessary – proliferation of formalised procedures. Assessments are based, not on whether the decisions made are any good, but on whether they were made in accordance with what is deemed to be an appropriate process. We assume, not only that good procedure will give rise to good outcome, but also that the ability to articulate the procedure is the key to good outcomes.
We claim to believe that there is an objective method by which all right thinking people would, with sufficient diligence and intelligence, arrive at a good answer to any complex problem. But there is no such method. A perhaps apocryphal story tells of the professor of decision sciences contemplating a job offer from another university and discussing his conflicting emotions with his wife. “Surely, dear,” she says, “you of all people should be able to make this decision wisely?” “Don’t be silly,” he responds. “This matter is serious.”