Letting Leaders Off

Bryan Caplan:

The gold standard of modern social science is … a “random controlled trial.” … And yet… real-world policy-makers continue to neglect, evade, and actively oppose experimental tests of efficacy. … Tim Harford explains why:

Politicians resist pilot schemes with objective measures of success. … politically inconvenient is the fact that half of the pilot schemes will fail… so the pilot will simply produce stark evidence of that failure. …

This is all a nice example of a theme I’ve been pushing for a while ….

Political agency problems are often a byproduct of voter irrationality. The principals give their agents grossly suboptimal incentives, then complain that the agents fail to carry out their assignments. … Pay-for-performance is a good idea, but the public is too irrational to accept it.

Note that private CEOs are also quite reluctant to run randomized trials of their business ideas. Yes some trials happens in marketing, but firms overall still display a puzzling neglect of randomized trials, and of prediction markets. Both mechanisms offer more accurate info, but at the cost of a high rate of clear public embarrassments – clear evidence showing that you endorsed crap.

Yes firms do implement incentive pay more often, but firms still remain puzzlingly reluctant to correct such incentives for overall trends in the economy or the local industry. Maybe voters are more reluctant than stockholders to discipline their agents, making the private sector more efficient at managing many forms of activity. But in both cases there remains a puzzling reluctance to force leaders to prove their value.

My hypothesis: leaders have status, with which voters and stockholders want to affiliate. While people talk about being offended by leader dominance, they are actually quite eager to submit, and reluctant to risk leader wrath by questioning leader quality. The people’s romance with the state makes them even more reluctant to hold political leaders accountable, so this effect is even worse in politics.

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  • Buck Farmer

    Preserving the community is a bigger factor than affiliating with high-status individuals.

    Highly socialized firms (i.e. middle management for most large corporations) are willing to trade a large amount of accuracy/truth/profitability in exchange for social stability. Both tracking incentives to the broader market and economy and placing too exacting measurements on performance are extremely disruptive to social stability.

    Even putting experimentation and prediction markets aside, I often see extreme aversion to putting in any sort of quanitative tracking of specific initiatives that could tie back to an individual’s performance. Similarly pay is driven far more by firm-internal comparisons than by broader market comparisons (outside of particularly liquid roles like sales).

    I attribute this to a strong egalitarian instinct in humanity, and refer to Robert Frank’s work on wage differentials for further insight.

  • Vladimir Golovin

    Note that private CEOs are also quite reluctant to run randomized trials of their business ideas.

    Counterexample: Mark Pincus. Zynga is is explicitly built around randomized controlled trials: http://grattisfaction.com/2010/01/how-zynga-does-customer-development-minimum-viable-product/

    • snarles

      Great link.

    • Wes Winham

      I was going to reply with a similar link. There’s currently an entire “Lean Startup” entrepreneurship movement growing around the concept of actually measuring results and focusing on learning from meaningful trials. It’s becoming increasingly common amongst startups and I have some hope that some of these practices will slowly infiltrate older organizations (they’re already core to mult-billion dollar former startups like Facebook and Zynga).

      There’s a lot of low-hanging fruit in the way businesses are run in regard to learning and experimentation.

  • The people’s romance with the state makes them even more reluctant to hold political leaders accountable, so this effect is even worse in politics.

    In the UK we have a number of mechanisms to minimise this effect. One is the weekly mauling of the Prime Minister by the House of Commons during which he has to shout to be heard over aggressive personal heckles.

    Another is the tradition of equally robust questioning in the news media: here’s Jeremy Paxman grilling then-Prime Minister Tony Blair about the number of illegal immigrants in the country. http://www.youtube.com/watch?v=vJIjTviLLTs&feature=related

    The most important in my view is our maintenance of the monarchy, which separates the pomp and circumstance of the state from the politicians. This allows people who need to feel patriotic to do so towards a figurehead with no political power (by convention, the queen does not even vote), leaving them free to criticise their political leaders without fear of being considered ‘un-British’.

  • PP

    Re: Leaders in the private sector: do we see increase in experimentation when leadership changes?

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  • Eric Falkenstein

    The key is to make the experiments sufficiently decentralized and common so that none rise to expose stupidity of the current regime or highlight a strong replacement candidate for the current leaders. So it seems that decentralizing experiments and making them common would be a feasible solution.

  • Eric

    My experience teaching at a business school has been that the sort of education necessary to become good at this sort of social science is antithetical to the self-image of business students. Science is “theoretical,” for geeks, and not for square-jawed straight-talking “leaders”. Internal accountability is fine, but thinking of business plans or relevant parts of business plans in terms of serious on-going empirical research about the social environment, either taken from other sources or generated in house, is not a good fit with the culture of MBAs.

  • Michael Wengler

    I don’t think the romance is with the state, I think it is with leadership and organizations. Further, it seems the evidence favors the romance: large organizations with charismatic leaders accomplish a tremendous amount.

    Where are the weak states that have won wars and therefor kept themselves in existence? Where are the “democratically run” large corporations outperforming their more orderly brethren because they better exploit the pushing of decision making further towards the edges than the center? Where are the great railroads and oil companies that evolved with a laissez faire attitude from the top?

    Some of us think we are individuals, perhaps that is the bias we need to overcome in order to understand humanity. The evidence seems to be that we are not THAT much smarter than chimps or bonobos or whales. What we are is insanely better communicators, both through language and through the apparent instict to trade that Ridley talks about in the Rational Optimist. Our left arm and our right arm don’t develop separate theories of individualtiy until the corpus collosum is cut. But what of the group mind? We have a strong connection between or right and left brains, we have a weaker connection to a myriad of other brains on the planet through talk, writing, radio, and internet. While our individual brain is not yet mechanized, we have been mechanically aiding our group brain starting with writing and accounting on clay tablets and going up from there.

    Perhaps some part of the group brain needs to organize the efforts of the other prarts. Perhaps other parts LIKE to be organized and have even evolved to like it since it creates a more effective group brain which has been incredibly valuable in natural selection as well as in building collosea and getting to North America and later, to the Moon.

    Maybe the love of leaders is a feature to be managed, and not at all a bug.