Tag Archives: Management

Letting Leaders Off

By Robin Hanson · May 30, 2011 8:00 pm · Comments (10)

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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I Talk Wed. At Harvard

By Robin Hanson · April 21, 2011 9:40 am · Comments (6)

Next Wednesday I’ll talk at Harvard business school on “Toward Information Accounting“:

What gets measured, gets done. Today, organizations account in great detail for revenue and the costs of materials and time, but have only crude informal accounting of info contributed to key organizational decisions. Because info cost and value are poorly measured, info production is neglected.

Can we use prediction markets to do better? Imagine speculative betting markets on many key organizational questions, and two key changes in business practice. First, let the division responsible for each decision declare lower-bound estimates of the value of more info on each related question. A division might, for example, declare that 1% lower error in estimating 3rd quarter sales of product X is worth at least $5000. There are standard ways to calculate such info value in specialized situations, such as inventory management.

Second, let trader accounts be denominated in a new “color of money.” Instead of doing zerosum betting, the market for each question would be subsidized at a level matching its declared info value. As a result, the subsidy amounts lost to traders as prices become more accurate would on average correspond to that question’s declared info value. For example, on 3rd quarter sales of product X, its 0.7% lower error might have earned a $3500 subsidy, going to George who gained $2000, Sue who gained $1500, Sam who gained $1000, and Fred who lost $1000.

Given these two new practices, trader account gains could be interpreted as noisy estimates of the info value those accounts transmitted via their trades. Losses could be interpreted as info destruction. Simple statistics applied to the pattern of changes in an account over time could estimate its consistent gains, amid its temporary fluctuations. The total consistent gains for the accounts of a division could be credited to that division in its ordinary cost accounting, while that same amount is debited from the divisions who declared info value on those questions.

When one created an account with an initial cash deposit, and authorized an individual or team to trade that account on specific questions, one would in essence say: “Try to show us that you can consistently add info value here via your trades. We’ve started you out small, but if you can show consistent gains we may give you more to work with. At annual review time we’ll credit your account’s consistent gains (or losses) to you (and your division) as value you transmitted to this organization, to be compared with your time and other costs of participation.”

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Leading Isn’t Helping

By Robin Hanson · December 2, 2010 6:35 pm · Comments (5)

A lab experiment suggests groups reward leaders mainly for projecting high status, rather than for raising group payoffs. Perhaps having high status leaders raises the status of other group members, or members compete more with low status leaders in the hope of replacing them. If this pattern applies more generally to organization managers, it helps explain why they pay so little attention to improving the efficiency of their organizations, and so much to infighting and domination displays. Read and weep:

In a repeated public-goods game … players were more likely to mimic the actions of a leader they perceived as a high-status individual; they ignored leaders perceived as low-status and, when they had a chance, punished them for trying to lead. …

In each round … [each of the 80] players … had to decide what portion to keep for themselves and how much to contribute to a group account. Whatever was put into the group account was doubled and then split equally by the group of four. … Each group had a leader whose contributions everyone could see. The leader was determined by scores on an arbitrary trivia quiz. In half the experiments, the leader was the player who had the highest score (high status); in the other half,… the lowest score (low status). …

At the end of each of the 20 rounds, each follower observed his or her own earnings and the leader’s contributions. The leader observed the contributions of each of the followers. On average, players allocated between 40 and 50 percent of their [money] to the public pot, whether they had a high- or low-status leader. However, contributions from followers with low-status leaders dropped off in later rounds even though their leaders began giving more and more. … Groups with high-status leaders showed greater stability, and the followers were more likely to imitate their leaders — even though those leaders … [didn't increase their] contributions. …

In the 21st round of the game, followers were given the option to punish the leader by issuing points that decreased a player’s profits in the experiment, and vice versa. … Once punishment was introduced, contributions increased significantly for the groups with a low-status leader and only slightly for those with a high-status leader. However, low-status leaders punished others and, in turn, were punished more. They made significantly less money in the experiment than any other player. (more, more; HT Tyler)

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New Vs. Old Guard

By Robin Hanson · November 1, 2010 10:00 am · Comments (23)

Jon Stewart can pretend all he wants that the point of his big rally Saturday was just for chuckles, or just to encourage a more reasonable, substantive and civil tone in American politics. The reality is that his own audience on the Mall had an additional agenda, and it was decidedly partisan and decidedly liberal. … It’s self-defeating and even delusional to think progressive policies are going to be achieved just by agitating nobly for a more positive style in politics. (more)

So why is the U.S. left suddenly so eager to emphasize its civility and maturity compared with the right?

In both primitive tribes and modern board rooms, incumbents play out a standard script when arguing with upstarts. When a new guard bids for more influence relative to an old, the new suggests the old is weak, corrupt, out of touch, and past their prime, while the old suggests the new is immature, inexperienced, unrealistic, and untried. The old guard tries to sound calm and reasonable and suggest things are ok, there’s no need for disruptive change, or perhaps that we can’t afford to change captains midstream in a crisis. The new guard will suggest a crisis, with problems getting worse until we change tact, or perhaps that only new leadership can take full advantage of new opportunities.

We are so habituated to expect these patterns that we use these arguments, and are persuaded by them, even when they are unlikely to apply. For example, in a modern two party political system, the party out of power is probably nearly as corrupt and mature as the party in power. Nevertheless, the out party will complain of corruption, while the in complains of immaturity.  The circle of autopilot-thought life continues.

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Tyler On A Roll

By Robin Hanson · September 6, 2010 3:00 pm · Comments (1)

Five thought-provoking posts in six days:

What Is Management About: “Business is much more about being organized and managing people than it is about ideas. Past a certain scale, ideas don’t seem to matter much … Much of the time spent discussing `ideas’ in a business context is actually time spent slowly maneuvering large groups of managers into a compatible mind-space so that they can work together effectively.” (more)

Why Little Airline Plain Talk: Half of [employees] dislike or sometimes even despise their customers and that their natural speech patterns, given their true feelings, would come across negatively. … They face lots of customers, with varying and often unreasonable expectations, and they have few resources to buy them off with. (more)

Most Story Protagonists Kidless: “At least 50 percent of the great literary characters exit the book without having reproduced.” … The decline of the heroic ideal in literature, and the decline of the journey of adventure, seem to be stronger forces in predicting fictional family size. (more)

Why Corporate BS Talk: Since it is hard to oppose fluffy generalities in any very specific way, a common strategy is to stack everyone’s opinion or points into an incoherent whole. Disagreement is then less likely to become a focal point within the corporation and warring coalitions are less likely to form. … Rule of thumb: when you see the demoralizing, start with the premise that it is being done for morale. (more)

Happiness As Bad Signal: “Happiness” to me sounds boring, as if the person has a limited imagination when it comes to wants and an inability to be frustrated by the difficulty of creating new peak experiences. … Viewed as a signaling problem, “happiness” fails when it comes to credibly demonstrating the possession of some extreme quality or another. The busier people are, and the higher wages are, the more important it should be to signal extreme qualities to command the attention of interesting others. (more)

Don’t stop now Tyler!

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Types of Thinkers

By Robin Hanson · June 14, 2010 4:00 pm · Comments (17)

You have to do much more now to get into a top school like Yale or West Point, and you have to start a lot earlier. … I sat on the Yale College admissions committee a couple of years ago. … It turned out that a student who had six or seven extracurriculars was already in trouble. Because the students who got in—in addition to perfect grades and top scores—usually had 10 or 12. ….

People who can climb the greasy pole of whatever hierarchy they decide to attach themselves to. But I think there’s something desperately wrong, and even dangerous, about that idea. … The head of my department had no genius for organizing or initiative or even order, no particular learning or intelligence, no distinguishing characteristics at all. Just the ability to keep the routine going. … Why is it so often that the best people are stuck in the middle and the people who are running things—the leaders—are the mediocrities? Because excellence isn’t usually what gets you up the greasy pole. What gets you up is a talent for maneuvering. …

You will find yourself in environments where what is rewarded above all is conformity. I tell you so you can decide to be a different kind of leader. … For too long we have been training leaders who only know how to keep the routine going. Who can answer questions, but don’t know how to ask them. Who can fulfill goals, but don’t know how to set them. Who think about how to get things done, but not whether they’re worth doing in the first place. …

What we don’t have, in other words, are thinkers. People who can think for themselves. … Thinking means concentrating on one thing long enough to develop an idea about it. Not learning other people’s ideas, or memorizing a body of information, however much those may sometimes be useful. Developing your own ideas. In short, thinking for yourself. You simply cannot do that in bursts of 20 seconds at a time, constantly interrupted by Facebook messages or Twitter tweets. (more)

It is tempting to agree that our organizations are inefficient because they systematically fail to reward the right sort of thinking.  After all, the author of the above and I fancy ourselves as this other neglected but superior sort of thinker.  But while there are indeed many sorts of thinkers, this author offers no evidence that the currently rewarded mix is actually the wrong mix. (And it is a bad sign that it doesn’t seem to occur to him to look for such evidence.)

Routine-preserving conformists may not look as impressive to the eyes of foragers, to Versailles courtiers, or to me.  But they may still be what our world most needs, and so most rewards. See also the overlapping debate on if multitasking is vital or vile.

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Remorseless Power

By Robin Hanson · May 18, 2010 9:35 am · Comments (13)

Making people feel powerful makes them good at lying:

Dana Carney divided research subjects into two groups: bosses and employees. Bosses got larger offices and more power; they were asked, for instance, to assign employees’ salaries. Half of all subjects were instructed by a computer to steal a $100 bill. If they could convince an interviewer they hadn’t taken it, they could keep it. The other subjects were questioned as well. In the interviews, lying bosses displayed fewer involuntary signs of dishonesty and stress. … We measured subjects on five variables that indicate lying—involuntary shoulder shrugs, accelerated speech, the level of the stress hormone cortisol in their saliva, cognitive impairment, and emotional distress. Only the low-power liars could be “seen” as lying; the readings for the liars with power were essentially the same as those for truth tellers on all five variables. (more)

I’d always heard that the reason humans can’t lie well is because our minds are leaky, sending signals about our anxiety every which way.  But this result suggests not; it suggests we are quite capable of lying well, but are designed to not always use that full capacity.  So now I’ll guess the same thing holds for blushing; we often reveal feelings we think we want to hide via blushing, but are quite capable of not doing so if we feel powerful enough.

I’ve been posting lots lately on ways we seem to give the powerful a pass, not holding them to the same high standards we hold others, perhaps for deference or fear of retribution.  So now I’ll guess that we blush and leak lies out of a fear of a larger punishment if we are caught; for the non-powerful, the punishment for a norm violation when we give out such clues that we feel guilty about our violation is far less than if we don’t give out such clues.  The powerful apparently needn’t fear such extra punishment for remorseless lies, though they do fear being caught lying.  Why?

Perhaps for our homo hypocritus ancestors, the implicit elites in a band were better able to read such clues, either via better raw abilities or because power frees one to use such abilities (perhaps by reducing fear of retribution).  So by lying but giving off subtle clues about your lies you might have been saying to the elites, “I’m only lying to these other fools, not to you.”  When elites caught non-elites in well-hidden remorseless lies, they made sure to punish them much more severely.

FYI, one can also make folks feel powerful just by making their body take up more space:

You know how peacocks spread their feathers? What they’re doing is taking up more space, an assertion of power that’s common in animals. Cobras rear; birds spread their wings. Humans do it, too. Think of the CEO with his feet up on the desk, leaning back in his chair, hands clasped behind his head with elbows out … We found that people in power poses show higher testosterone levels and lower cortisol levels. They feel more powerful and less stressed out, just because they take up more space. When prompted, they take more risks than people in subordinate poses. (more)

Added 3p: The details that give away lies are much less reliably communicated to distant others.  You could get folks to clearly testify that someone had said certain words, but this would be much harder to do regarding how much speech was sped-up, or how unusual were any shoulder shrugs.  So to enforce an added punishment based on the presence of these added clues, one needs enough discretion to be able to act on one’s own judgement, rather than on what one can prove to outsiders.  Perhaps powerful folks can better prevent those they hurt with such lies from acting with such local discretion.

Added 7p: Perhaps this is like my suggestion that we “Choke to Submit“; perhaps lying with relaxed confidence is seen as a bid for high status, which if discovered will be squashed vigorously on those who can’t support such status.

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Proxy Access

By Robin Hanson · May 14, 2010 12:35 pm · Comments (11)

“This is our highest priority,” said John Castellani, president of the Business Roundtable, which represents 170 chief executives. “Literally all of our members have called about this.” Last week alone, Castellani said, 40 chief executives were in town visiting Capitol Hill about [the proposal]. Concern cuts across industry lines. Steve Odland of Office Depot, Ivan Seidenberg of Verizon and Jim McNerney of Boeing have all been in Washington arguing against the provision. So has Ursula Burns of Xerox, who is the vice chairman of President Obama’s Export Council and a longtime supporter of his. Obama supports [the proposal].

So what key policy has CEOs so fired up? Obamacare? Taxes? Immigration? Cap & Trade? Troops Abroad? No, proxy access:

Businesses far from Wall Street have intensified their efforts to kill a largely overshadowed provision of the Senate’s financial regulation bill giving shareholders more ammunition to shake up corporate boards. … With proxy access, shareholders would be able to send a strong message to management if they weren’t happy with a company’s strategy, for instance, in managing risk or charting growth. On the other side, public companies fear that proxy access will mainly invite activist investors and hedge funds to infiltrate boards and topple existing management — whether out of displeasure with how a company is run or to pave the way for a hostile takeover.

The end result, corporate executives warn, is that board directors will feel constant pressure to juice up their company’s stock price and put short-term considerations ahead of the firm’s long-term health. … Under current law, if shareholders want to nominate their own board directors, they must pay for publicizing candidates and mailing ballots, which can cost millions of dollars. Critics say this discourages shareholders from making the effort. Proxy access would force companies to foot the bill for outside nominees. …

“We talk about shareholder democracy, but what we really mean is activist hedge funds and state-pension-fund democracy,” she said. “There’s really no evidence this is going to benefit long-term diversified investors, which means the rest of us.”  Supporters of proxy access counter that institutional investors are just as interested in the long term as everyday, 401(k) investors. And any board nominee would still have to be approved by a majority of shareholders.

As I said in January:

Apparently we must protect over-paid CEOs because they are our heroic public-spirited defenders of the little guy against greedy shareholders. Where oh where would little folks be if not for protection from CEOs? Oh, please! CEOs?!

More evidence that we defer to almost-transparently self-serving authorities more often than we like to admit to ourselves.

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Good, Bad, & Ugly

By Robin Hanson · May 11, 2010 2:30 pm · Comments (4)

Leaders can be good, leading for for the good of the group, bad, explicitly ruling out of self-interest, or ugly, acting bad but forcing others to pretend they are good. Let’s take these in conceptual order:

  • Bad – Our primate ancestor leaders were directly dominant, out of explicit self-interest.  While top animals provided the useful function of keeping the peace among lower folk, they weren’t shy about using their position for personal advantage (e.g., food, mates) whenever possible.  But limited communication abilities limited their dominance.  Human tyrants use language to better coordinate to give orders and identify disobedience, and so can dominate more strongly.
  • Good – Our distant human ancestors reacted to this by coordinating to discourage such tyranny.  Strong social norms enabled coordination to punish clear overt attempts by anyone to brag, give orders, or grab food, mates, etc.  Foragers even punished slight moves by anyone in such dominance directions.  Leaders had to appear to consistently follow the will of the group, and act for the good of the group, and always with individual permission.
  • Ugly – Our homo hypocritus ancestors learned to appear to follow and enforce these norms, while actually acting more dominant or submissive as the situation allowed or required.  Leaders could coordinate status and coalitions via implicit body, voice, and word status moves.  Norm violations not visible to outsiders could be hushed up, and troublemakers accused of sorcery. Folks learned to accept and not challenge high status hypocrisy if they could not muster a coalition for a successful challenge.

If the king may say he rules reluctantly, because the nation really needs him, who dares to publicly disagree?  When “mamma” tries to run your life but insists it is only for your own good, you know not to challenge this last claim if you value your hide.  A wife beaten by her husband may find it in her interest to hide such beatings from her husband’s coworkers; those coworkers might suspect such beatings, but keep silent if no concrete evidence forces them to acknowledge it.  The US can keep as an ally a foreign nation that arbitrarily tortures it citizens, if it isn’t forced to acknowledge clear evidence of such torture.

In general, when you violate domination norms, you should worry about wider audiences, who need to keep up their reputation for punishing clear violations of anti-domination norms. But if the observers that watch them are hardly paying attention, these audiences may ignore your dominance, as long as you offer a thin veneer of excuses for it.

For example, consider a government who raises the status of a profession by authorizing self-policing and by requiring licensing.  If they claim this protects consumers from themselves, those considering publicly opposition to such rules must wonder who will join them, and how effectively that profession and its allies might retaliate against their opposition.  A vague excuse like “protecting customers” may be all it takes to preserve an equilibrium of this profession’s continued dominance, via self-policing and professional licensing.  A vague excuse may be all observers need to justify the more convenient strategy of supporting the powerful against their lower-status opponents.

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Baby-Face Your CEO

By Robin Hanson · April 22, 2010 1:00 am · Comments (3)

We conduct beauty contest experiments, using close to 2,000 subjects. … We use pairs of photographs and find that subjects rate CEO faces as appearing more “competent” and less “likable” than non-CEO faces.  Another experiment matches CEOs from large firms against CEOs from smaller firms and finds large-firm CEOs look more competent and likable. …We find that executive compensation is linked to these perceived “competence” ratings. …  [This] can be explained by a quantitative scoring of the “maturity” or “baby-facedness” of the CEO.  That is, more mature looking CEOs are assigned higher “competence” scores. … We find no evidence that the firms of competent looking CEOs perform better. (more)

So to get a CEO that costs less but is just as effective, pick one that looks “baby-faced.”  Now that this news is out, do we expect such great deals to quickly disappear?   I don’t – since we limit hostile takeovers, boards face only weak pressures to make firms efficient.  So most boards prefer to pick a CEO that seems competent, over one who is competent.

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