Bob Sutton Responds
A response, of sorts, to my post on Evidence-Based Management by EBM co-founder Bob Sutton:
Perhaps the term is doesn’t do much for you, but evidence-based decisions and implementations are the exception rather than the rule. It may sounds obvious, but few managers are masters of the obvious. It may sound like common sense, but common sense is in fact uncommon. I travel back and forth between the academic and management worlds, and evidence-based practice is rare — faith-based management is a lot more common and so are management decisions based on dangerous and powerful cognitive biases. Indeed, if you look at some of the work that Kahneman won the Nobel Prize for, you will see that humans in fact have trouble spotting and responding to accurate patterns. Look at the bad merger decisions that are made over and over again. Look at the belief in creating big gaps between the best and worst paid employees despite a huge pile of data showing that the opposite is true. Sorry if it seems trite, but like evidence-based medicine, it sounds trite until it is your money — or your life — that is on the line. People also laugh when I tell them that only about 15 to 20% of medical decisions are based on evidence — until they think of what it means for them and those they love.
I submit that, if the term bewilders and you believe that “What other kind of management is there?” it is a sign that you have no idea how most managers do their work, nor do you understand how most human beings make decisions. Start by reading Max Bazerman’s book on managerial decision-making.
This deserves a full-length rejoinder, but for now a few brief remarks will have to suffice. (more…)
Theorists Need History, But Historians Need Theory Too
| Peter Klein |
We have previously lamented the lack of interest in doctrinal history among contemporary social scientists (here and here). Wanting to be Real Scientists, economists and management theorists tend to focus on the latest trendy theories and empirical techniques, paying little attention to what prior generations of scholars might have thought. If this means occasionally re-inventing the wheel, well, that’s the price of being on the cutting edge.
It is often argued that the increasing marginalization of doctrinal history — and its transformation into a specialized field with its own associations, conferences, journals, etc. — may be harmful to current practice. I share this concern. At the same time, however, the emergence of doctrinal history as a self-contained field may also be harmful to doctrinal history. (more…)
Live Broadcasting the Nobel
| Nicolai Foss |
I am not quite sure, but it does seem that the Nobel Foundation is engaging in a new practice when they live broadcast this year’s Nobel Prize announcements (at this link). So be ready for the Econ Nobel announcement on Monday October 9, 1.00 p.m CET.
Chestnut Street: The First “Wall Street”
| Peter Klein |
Did you know that the US’s first financial hub was not in New York, but in Philadelphia? So says Robert Wright’s The First Wall Street: Chestnut Street, Philadelphia, and the Birth of American Finance (University of Chicago Press, 2005).
Here’s an interesting point made in Peter Rousseau’s review:
One point that Wright does not make explicitly, but which is nonetheless reinforced by his lively narratives, is the primal nature of real activity as the driving force behind the location and development of finance. At a time when colonial economic activity was more local in nature and commerce more international, Philadelphia’s position as an Atlantic port made it an adequate commercial center, especially since it was already a political center. It was therefore natural for the financial system to have its mainsprings there. A virtuous cycle of real needs leading to finance and promoting further real growth seems to have been the result. But as it became increasingly clear that the new nation and its large land mass was not a featureless plain, the move to New York might be seen as a classic example of Joan Robinson’s famous adage that “where enterprise leads, finance follows.” And follow it did in this case. As Chestnut Street’s best financiers headed off to New York, their expertise went with them. Only large sunk investments in plant and equipment for the Federal mint and the central bank could hold these institutions in the Quaker City, at least until political forces took care of the latter.
New Issue of the QJAE Out
| Nicolai Foss |
The Quarterly Journal of Austrian Economics is one of three existing periodicals that are 100% devoted to promoting Austrian economics. The other two are the Review of Austrian Economics and Advances in Austrian Economics. QJAE differs by having more of an emphasis on the hardcore Misesian stream of Austrianism. There is, therefore, a focus on the work of a single scholar (Mises) that is rather unusual for an economics journal (this is the one dimension in which the Journal of Post-Keynesian Economics is like the QJAE).
I have read the QJAE since its start nine years ago, and served on its editorial board since the founding of the journal. The most recent issue is, at least to this reader, the best so far. (more…)
Ghoshal on Economics — Cont’d
| Nicolai Foss |
Frequent readers of this blog will know that we have often posted on the bashing of economics that is going on in the management field (e.g., here and here). The bashing has been cumulating lately. A recent high point of management econ-bashing is the conferment of the AoM Prize for best paper in Academy of Management Review to Ferraro, Pfeffer, and Sutton’s adaptation of extreme and unqualified sociology of knowledge arguments in their “Economics Language and Assumptions: How Theories Can Become Self-Fulfilling.” (more…)
Happy Mises Day
| Peter Klein |
We neglected to wish our readers yesterday a Happy Mises Day. Ludwig von Mises was born 125 years ago on 29 September 1881. Guido Hülsmann, whose full-length biography of Mises will appear in 2007, shares some tributes that were published on (or just before) Mises’s death in 1973. Among the accolades: “Recognized as a brilliant contributor to economic thought not only by his disciples but also by many who disagreed radically with his political and social philosophy” (International Herald-Tribune). “The world’s liberal economists [have lost] their most prolific pen” (Daily Telegraph). “He held that a free society and a free market are inseparable. He gloried in the potential of reason and man. In sum, he stood for principle in the finest tradition of Western Civilization” (Wall Street Journal). “The de Tocqueville of modern economics” (CBS television). Murray Rothbard wrote in Human Events:
Readers of Mises’ majestic, formidable and uncompromising works must have often been surprised to meet him in person. Perhaps they had formed the image of Ludwig Mises as cold, severe, austere, the logical scholar repelled by lesser mortals, bitter at the follies around him and at the long trail of wrongs and insults that he had suffered. They couldn’t have been more wrong; for what they met was a mind of genius blended harmoniously with a personality of great sweetness and benevolence. Not once has any of us heard a harsh or bitter word escape from Mises’ lips. Unfailingly gentle and courteous, Ludwig Mises was always there to encourage even the slightest signs of productivity or intelligence in his friends and students.
(For some reason, I never forget Hayek’s birthday.)
Varieties of Capitalist Development and Corporate Governance
| Peter Klein |
That is the theme for the 2007 Asia-Pacific Economic and Business History Conference at the University of Sydney. As noted in the call for papers: “While the historical study of market economies has been commonplace, there are many aspects worthy of further analysis including the role of savings, human capital, technology, government, and changing markets. Corporate governance has received wide attention in the wake of recent enterprise collapses, yet historians have only begun to research differences in corporate governance over time and among countries.”
The keynote speaker is Doug Irwin, author of several outstanding books on international trade theory and policy.
Bounded Rationality and Paternalism Redux
| Peter Klein |
John Cassidy’s New Yorker article on neuroeconomics, and his (and Colin Camerer’s) use of behavioral anomalies to justify paternalistic social policy, has provoked many strong responses. The latest is “Neuro Wine in Old Bottles” by Will Wilkinson, which concludes:
New findings in brain science will certainly help us to improve the technologies of Reason. But our freedom is perhaps the most important of those technologies. So before we get carried away with exciting brain-based arguments for paternalism and regulation, we should remember that it’s not rational, in any sense of the word, to burn the ladder you’re climbing.
NB: Robert Fogel says that economists, too, suffer from cognitive bias — they are too pessimistic. Understandable, given that the economist’s usual role is to correct for foolish optimism, or what Sowell calls the “unconstrained vision.” (Thanks to Bryan Caplan and Russ Roberts for the links.)
Framing and Incentives
| Nicolai Foss |
Here is one more cultural conservatism post, but one that relates to the economics themes that we often treat here at O&M.
I have just completed reading Theodore Dalrymple’s splendid Life at the Bottom: the Worldview that Makes the Underclass. This is confirming, challenging, and inspiring reading for somebody who subscribes, at least to some degree, to the economic worldview, i.e. notions that people respond (rather predictably) to incentives and in many ways react fairly rationally, that separating actions and consequences is often highly unfortunate, etc. (more…)
Call for Papers — DRUID 2007
| Nicolai Foss |
It is hard to believe, but DRUID — the Danish Research Unit of Industrial Dynamics — is now entering its 11th year. As one of the original founder-members of the DRUID, it is just great to observe the continuous improvements that have characterized the DRUID conference series from the rather humble (i.e., amateurish in the true sense of the word) beginnings in 1995. In fact, after last year’s very successful conference, I heard the Director of DRUID, Peter Maskell, worry — rather tongue-in-cheek — that perhaps DRUID is becoming “too Americanized.”
DRUID has never projected a distinct research program, but it has been able to become one of the leading platforms for research in innovation, industrial dynamics, etc. in the World. Its main activity is simply running two yearly conferences, one in January organized for PhD students and younger faculty, and one in June, much larger in scale and usually with good presenters indeed (e.g., Sid Winter, Steven Klepper, Anita McGahan, Alfonso Gambardella, Richard Nelson etc. etc.). In addition, DRUID maintains a very nicely organized website with lots of downloadable papers.
The full Call for Papers for the 2007 conference (not yet available on the DRUID website) is here:
The “Essay Tradition” in Economics
| Peter Klein |
On the triumph of formalism in economics (addressed here and here) — not to mention academic insults — I give you this passage in Fred Kaplan’s The Wizards of Armageddon, a history of the RAND Corporation. The subject is RAND mathematician Albert Wohlstetter, the chief theoretician behind the development of US nuclear strategy in the 1950s and 1960s. Writes Kaplan:
[T]he social science division was removed from the rest of RAND — literally, 2500 miles away, in Washington, D.C. Most [of the social scientists] were figuratively removed, too: quantitative analysis had triumphed at RAND, through the spread of systems analysis and game theory and — until the Wohlstetter studies, which put the economids division on top of the strategic business — through the domination over the rest of RAND by the mathematics division. [Wohlstetter, though a mathematician, was associated with the economics division.] These sorts of studies were scientific, so it was thought; there were numbers, calculations, rigorously checked, sometimes on a computer. maybe the numbers were questionable, but they were tangible, unlike the theorizing, the Kremlinology, the academic historical research and interpretation produced by social science. Wohlstetter snootily denigrated all such works as being in “the essay tradition.”
New Journal: Regulation and Governance
| Peter Klein |
Regulation & Governance aims to serve as the leading platform for the study of regulation and governance by political scientists, lawyers, sociologists, historians, criminologists, psychologists, anthropologists, economists, and others. Research on regulation and governance, once fragmented across various disciplines and subject areas, has emerged at the cutting edge of paradigmatic change in the social sciences. Through the peer-reviewed journal Regulation & Governance, we seek to advance discussions between various disciplines about regulation and governance, promote the development of new theoretical and empirical understanding, and serve the growing needs of practitioners for a useful academic reference.
Here is the journal’s homepage. John Braithwaite, Cary Coglianese, and David Levi-Faur are the editors. The interesting editorial board includes anthropologist Margaret Levi, law professors Susan Rose-Ackerman and Cass Sunstein, and economist Kip Viscusi.
Viscusi, by the way, is a player in Vanderbilt University’s new PhD program in law and economics. (The budget for that program is one of the few big-ticket items for which Vanderbilt Chancellor Gordon Gee is not in trouble.)
Tolerance and Subjectivism
| David Gordon |
Many people argue that because all value judgments are subjective, we shouldn’t impose our preferences on other people. Someone, e.g., who thinks that abortion is morally wrong should not try to prevent those who disagree with this view from having abortions. This argument strikes me as incoherent. The incoherence emerges clearly if we restate the argument in this way: Because all value judgments are subjective, here is a value judgment that isn’t subjective, namely, the value judgment that we shouldn’t impose our preferences on other people.
A defender of the argument might respond that he isn’t claiming that it is objectively true that we shouldn’t impose our preferences on others: he is rather stating, as a value judgment of his own, the view that we shouldn’t impose our preferences on others. A consequence of this way of taking the conclusion of the argument is that we shouldn’t impose this preference on others either. We shouldn’t forcibly interefere with those who are attempting to impose their value judgments on others, because to do this is to impose our value judgment, namely that one shouldn’t do such things, on them. But this is only a consequence of this subjectivist response that is probably unwelcome, not a refutation of it. (more…)
Lachmann Paper
| Nicolai Foss |
Giampaolo Garzarelli (University of Witwatersrand) and I have just had our paper on Ludwig Lachmann, “Institutions as Knowledge Capital: Ludwig M. Lachmann’s Interpretive Institutionalism,” accepted by the Cambridge Journal of Economics. Mail me at njf.smg@cbs.dk if you want a copy. Here is the abstract:
This paper revisits the socioeconomic theory of the Austrian School economist Ludwig M. Lachmann. By showing that the common claim that Lachmann’s idiosyncratic (read: eclectic and multidisciplinary) approach to economics entails nihilism is unfounded, it reaches the following conclusions. (1) Lachmann held a sophisticated institutional position to economics that anticipated developments in contemporary new institutional economics. (2) Lachmann’s sociological and economic reading of institutions offers insights for the problem of coordination. (3) Lachmann indirectly extends contemporary new institutional theory without simultaneously denying the policy approach of comparative institutional analysis.
Friedman-Stigler Correspondence
| Peter Klein |
Historians of economic thought, social-science methodologists, and Chicago School junkies may enjoy J. Daniel Hammond and Claire H. Hammond’s edited volume Making Chicago Price Theory: Friedman-Stigler Correspondence, 1945-1957 (Routledge, 2006). (Friedman, of course, is respected, though not universally admired, here at O&M.) Reviewer Craig Freedman says the Friedman-Stigler correspondence
reflects the way in which the two attempted to transform economics. In particular, we can discern their attempts to reshape economic methodology, as well as their changing views on such issues as equality and income distribution. As we read these letters, the outline of what would form the bedrock of the Chicago School, a distinctive take on price theory, becomes progressively clearer.
Freedman also notes that while Friedman’s influence on monetary theory and policy and economic methodology is well known, Stigler’s defense of Marshallian partial-equilibrium analysis over Walrasian general-equilibrium theory is not as widely appreciated. (more…)
Scruton on Chomsky
| Nicolai Foss |
From yesterday’s WSJ.com, Roger Scruton taking on Noam Chomsky:
Prof. Chomsky is an intelligent man. Not everything he says by way of criticizing his country is wrong. However, he is not valued for his truths but for his rage, which stokes the rage of his admirers. He feeds the self-righteousness of America’s enemies, who feed the self-righteousness of Prof. Chomsky. And in the ensuing blaze everything is sacrificed, including the constructive criticism that America so much needs, and that America–unlike its enemies, Prof. Chomsky included–is prepared to listen to.
Enjoy!
MBA Students and Math
| Peter Klein |
My friend and former colleague Dwight Lee, along with Richard McKenzie, has produced a new textbook, Microeconomics for MBAs: The Economic Way of Thinking for Managers (Cambridge University Press, 2006). Lee and McKenzie have written more books than I’ve read (or colored) and, like all their books, Microeconomics for Managers is a delight — lively and engaging while also systematic, learned, and useful. I’ve been using Brickley, Smith, and Zimmerman’s Managerial Economics and Organizational Architecture for several years and have been quite satisfied, but am considering switching to McKenzie and Lee.
I noticed this plug in the dust-jacket blurb: “This is the first textbook in microeconomics written exclusively for MBA students. McKenzie/Lee minimizes attention to mathematics and maximizes attention to intuitive economic thinking.” I’ve taught undergraduates, MBAs, and PhD students, and haven’t noticed MBA students being more troubled by math than anyone else. Clearly many managerial economics texts, at any level, overemphasize technique over intuition and application. But many MBAs — especially those with an engineering background, which seems to be an increasing number — may actually prefer more math to less. Just a thought.
27 September 2006 at 11:17 am Peter G. Klein Leave a comment
Is the Corporation a Creature of the State?
| Peter Klein |
Piet-Hein van Eeghen argues in the Journal of Libertarian Studies (1, 2) that the corporation’s “entity status” — from which attributes such as limited liability and perpetuity are derived — is an artificial product of state intervention, a feature of the commercial landscape that wouldn’t exist in a truly free market. I think Eeghen is wrong, partly for failing to distinguish between limited contractual liability (which is achievable through contract) and limited tort liability (which isn’t). Limited contractual liability was a standard feature of joint-stock companies long before limited liability became the default rule in English common and statutory law, as Henry Hansmann (among others) has pointed out.
Anyway, for an interesting and lively debate on the corporation’s status in the free market, see this exchange (and the links therein) between Sean Gabb and Stephan Kinsella.
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