Consultants and Mass Transit

I recommend listening to these Freakonomics podcasts, I Consult, Therefore I Am and Mass Transit Hysteria.

Over the years, I’ve had the pleasure of working with management consultants from some of the biggest names in the business. Based on those experiences, I agree with much of what was said in this podcast.

I was amused at how a former consultant interviewed on the podcast relayed how the consulting gig was described to him by fellow consultants:

50% of the job is nodding your head at whatever is said. 30% of it is just sort of looking good and the other 20% is raising an objection, but if you meet resistance, then dropping it.

Steven Levitt described some lessons from his young consulting days. One lesson he learned was that the answers can’t always be found in the data and he said:

I [now] have this incredibly deep appreciation that the people in the middle and bottom of the organization absolutely know what’s going on and a lot of time the people at the top have no idea what needs to be done.

The show host, Dubner, explored the key question: Why hire management consultants? Especially when many of them are inexperienced recent grads, their recommendations are often obvious (or dumb) and there’s limited (actually none beyond low-hanging fruit) evidence that consultants actually help.

Why? Executives may want to gain legitimacy for stuff they want to do anyway or they may want to buy plausible deniability.

In my experience, it has been the latter. Being an executive is rough because every decision carries a job-costing risk. Paying McKinsey or Boston Consulting Group a million bucks to tell you what to do gains you a bit of finger-pointing potential when the Board of Directors start hammering about your lackluster performance.  ”But these smart guys told me to do it.” The scapegoat doesn’t last long, but it often buys the exec one or two more shots. Of course the Board should point the finger right back at the manager and say, “But this smart guy hired them and followed their advice.”

I wrote more on the subject of consulting in my posts, …And that resulted in what? and Be leery of big words. I still like this paragraph from the latter:

Can you imagine what the owner of an NFL team would do if his head coach hired a consultant to tell him what strategy his team should use to win games?  That’s right.  And that’s what Boards of Directors should do to managers who do that in business.

Mass Transit

In the other podcast, they discuss something about mass transit that I rarely see mentioned: Actual ridership.

According to the guest on the podcast, when actual ridership is taken into account, cars are more energy-efficient than buses and trains aren’t much better.

That’s mass transit blasphemy, isn’t it?

Mass transit proponents like to present us with idealized scenarios of heavily loaded vehicles. But, it turns out in the real world that a train or bus that moves a lot of people in one direction in the morning and another direction in the evening, make a lot of return trips when they are empty.

Also, they are typically run on schedules throughout the day when ridership is very low.

An efficiency advantage our cars have is that they don’t drive around empty all day while they wait to carry us home.

 

Pleasure vs. Necessity

(Photo credit: Wikipedia)

This Freakonomics podcast on the Tale of the $15 Tomato reminded me this post of mine about how things must be pretty good because we can afford to grow our own food.

The tale was about how someone bought a hydroponics tomato growing kit that produced about 15 tomatoes. Once they figured the cost of the kit, the electricity for the light to grow the tomatoes and the time they put into to growing the tomatoes, it cost them about $15 per tomato. And these were cherry tomatoes.

We use to grow our own food out of necessity. Now we do it out of novelty.

Why?

Because it is expensive (opportunity costs) and we’re not very good at it (comparative advantage) and others are much better (specialization).

Reminds me of a time as a young guy when I tried my hand at brewing my beer. I did it. Folks liked it. It was kind of neat to see the process. But, when we were drinking it one of my friends asked, “Why brew your own beer? Beer is so cheap.” I agreed and stopped brewing.

Related articles

• The Tale of the $15 Tomato: Full Transcript (freakonomics.com)

Be careful of the Pied Piper

I recommend listening to the latest Freakonomics podcast, The Power of the President. In it, Freakonomics economist Steven Levitt admits he was wrong about Obama.

At the 12:30 mark Levitt says:

I’ve probably never been more wrong about anything than I was about my projections for what the Obama administration would look like.

Levitt usually doesn’t pay much attention to politics and usually doesn’t vote. But he did in the last election. He credits Obama for being a great speaker and compares him to the Pied Piper, because:

…even though I disagreed with most of what he said, I immediately wanted to do them. I would have done whatever he would have told me to do.

That’s why I voted for Obama. I never vote, but I thought there was a good chance that Obama would be the greatest president in the history of mankind, and I wanted to be able to tell my grandchildren that I voted for Barack Obama.

One reason Levitt usually doesn’t vote is because he doesn’t think a president “matters all that much,” but he thinks the president can set a tone for the nation, and he thought “Obama would be able to set an incredible tone for our country.” He goes on:

…and what’s strange and surprising to me is that almost exactly the opposite happened. As soon as he got into office, it was just rancor and off-tune, off-pitch.

I’m glad someone can admit he was wrong. I wish he’d give other people, who weren’t wrong, more credit. Maybe we should more carefully consider their position in the future.

I’m reminded of a time where I participated in a mock government exercise as a high school student. In the gubernatorial campaign speeches, one candidate passionately recited some non-sense lyrics from a Prince song.

I remember thinking “what a disaster, this guy is bombing big time.” Much to my surprise, the auditorium erupted in applause and gave him a standing ovation. Myself and the guy sitting next to me were among the few who remained seated and silent with furled eyebrows. I asked him, “What the hell did he just say?” He responded, “I have no idea.”

That’s when it first occurred to me how many people could be swayed by style and emotion and there are very few of us that are more resistant to that.

Even Levitt, an economist, duped himself. He didn’t agree with much of what Obama said, but he would have done whatever Obama told him to do. For some reason, I have a natural tendency to put more weight — nearly all weight — on whether I agree or disagree with what someone is saying, not whether I like the way he or she says it.

I’m usually scanning for content and filtering out style. Much to my chagrin, I’m at the mercy of a population that appears to do the opposite.

But, they don’t just do the opposite. They often know they disagree with the person, but rationalize it away. I had friends in ’08 election who tried to convince me that while Obama appeared to be a bit far to the left (judging from what he said and his voting record), but he’d move to the middle when president. One even told me recently that while Obama hadn’t really moved to the middle in his first term, he expects that he will if he gets a second term. I’m sorry, what?

I would appreciate hearing Levitt say something like, “I’m going to make a point to be more careful about being swayed by style, emotion and fallacy in the future, and I encourage all of us to do the same. Listen to what people are saying. Ask yourself if you agree or disagree and then ask yourself why. Then find someone who can represent the disagreeing position well and talk to them.”

Competition and eu-competition is the lifeblood of emergent order

In a recent Freakonomics podcast encore, host Stephen Dubner explores How a Bad Radio Station is like our School System.

About 5 minutes into the podcast, Dubner asks Joel Klein, former chancellor of the New York City Public School System, why the standard model of education — “25 students in a box” — hasn’t changed.

I found Klein’s answer interesting:

How many psychiatrists does it take to change a light bulb?  The answer: Only one, but the light bulb has to really want to change.

And the answer to your [Dubner's] question is that the school system really does not want to change.  It wants more resources.

What I found interesting about Klein’s answer is that it describes organizations in general, not just education.  Businesses, charities, churches, clubs, families, associations and government organizations, once established, do not really want to change and they want more resources.

A common discussion is why private is better than public — why a business or private charity is better than a government program, for example.

For me, it’s not so much the private/public distinction that matters.  It’s the degree to which the organization is subjected to competition or eu-competition.

Aside:  I’m using eu-competition for lack of a better word (there may be a better word that’s just not coming to mind.  Let me know if you can think of one).  I got this idea of using the eu- prefix from this EconTalk podcast with Mike Munger where he talks about eu-voluntary trades.  These are trades that are voluntary, but one side has considerable more leverage than the other.

My term, eu-competition, means organizations that aren’t directly competing head-to-head with one another, but can benefit from discoveries and innovations made by other organizations.

For example, the political left often holds up fire departments as examples of good socialism at work, as if being funded by taxes is the only dimension of socialism.  What folks making this argument fail to consider is that fire departments operate in a eu-competitive environment.  While fire departments don’t compete head-to-head with each other for resources, they don’t answer to one centralized Federal Department of Fire, either.  And there are many fire departments that operate relatively independent of each other.

This means that there is greater natural likelihood for things to be done differently from one fire department to another.  For the most part, one way isn’t necessarily better than another.  But, every once in a while a fire department happens upon something that is better and before long, other fire departments can choose to adopt it if they too find that it can help.

I think what Klein said about education is true about most organizations — they are systems that don’t want to change.

K-12 education hasn’t had to change.  K-12 education is similar to the fire department example in my aside above, there are many school districts.

But, there is an important difference.   How K-12 education is operated is much more nationally centralized than how fire departments operate.

There is a Federal Department of Education that, as Arne Duncan, the current head of this department, admitted in the same Freakonomics podcast, has acted as a “compliance bureaucracy”.   This Department has the power of accountability through purse strings.  And, if it happens to be holding K-12 school district accountable for not changing, then they won’t change.

Further, there is a body of “education experts”, that have implicit power that they exercise through the Federal Department.

Also, people in general, believe in the one-size-fits-all education model.  I often hear people, even though they complained while going through K-12 of being forced into a box that didn’t fit them, say things like “we just need one standard and it needs to be a good one.”

So, education hasn’t really had the competitive and eu-competitive environment in which to change and evolve through natural experimentation, discovery, innovation and voluntary adoption of changing standards.

Almost every other organization — local government organizations, families, libraries, charities, clubs and businesses — operate in competitive and eu-competitive environments that do better counter act the resistance to change inherent in every organization.

Intuition and logic

Yesterday, Bryan Caplan of Econlog blog wrote about an excerpt from Daniel Kahneman’s book, Thinking Fast and Slow.

Kahneman suggests that when folks confront a difficult-to-answer question, we substitute a not so difficult-to-answer question and go with the substitute answer — whether it applies the original question or not.

For example, you may be asked, How happy are you with your life these days?  You may substitute that question for, What is my mood right now?  Then you go with the answer to that substitute question, even if it isn’t a very good answer to the original question.

Bill Frezza, writing on Forbes.com, covers Kahneman’s with additional detail:

Kahneman’s Nobel Prize-winning research ranges across a lifetime of psychological experiments, all of which point to the inescapable conclusion that we have two systems of thought that are at best loosely connected. Bridging that gap is the key to keeping democracy from destroying itself. Let me explain.

The first bit of mental machinery, which Kahneman blandly calls System One, works 24/7 to keep us out of trouble, while alerting us to fleeting opportunities. Appropriate for a species that is both predator and prey, System One lives in a world of snap judgments, extensible metaphors, ill-informed biases, and loosely constructed rules of thumb. We sometimes call this decision making apparatus intuition. Man’s intuition is sophisticated enough that it has helped us thrive across a variety of ever changing environments.

Despite its utility, System One is often wrong, especially if numbers are involved. For a trivial example, answer quickly: If the sum of the cost of a ball and bat is $1.10 and the bat cost a dollar more than the ball, what does the ball cost? Your System One answer (most likely wrong) is good enough to avoid mistaking a hungry lion for a tasty chicken. But it’s not good enough to build an airplane or design an effective income tax code. (The answer is a nickel, not a dime.)

System Two is associated with enumeration, computation, objective analysis, and complex chains of logic. It is our rational brain. Kahneman’s work shows that even scientists like himself use System Two very sparingly, calling on it only when System One asks for help. In addition, in order to function at the highest levels, System Two requires training, discipline, concentration, skeptical and impartial evaluation of purported facts, and the ruthless elimination of contradictions.

…when it comes to electing increasingly all-powerful political leaders whose policies can unravel entire industries at a whim, it’s all System One all the time. Our political discourse has no room for System Two thinking. In fact, the opposite is true. Every ounce of campaign energy and the lion’s share of media attention are devoted to manipulating our snap judgments, extensible metaphors, ill-informed biases, and loosely constructed rules of thumb.

It sounds a bit like right and left brains, intuition and logic.  But, it appears well articulated and helpful.

Allowing our System One and System Two selves to get to know each other better may help improve the weaknesses in our thinking.

Maybe we’ll better learn to say things like, “well, my intuition is telling me…, but I need to think about it some more,” instead of adamantly going with our intuitive answer and not giving it another thought.

Kahneman may also help answer a great question posed by a Freakonomics podcast listener last week:

Why do people feel compelled to answer questions that they do not know the answer to?

It could be System One kicking in.  Intuitively, we feel that giving some answer is better than giving no answer, even though that’s not true.

I base that on my own experience in giving presentations.  Early in my presentation career, I tried to answer every question.  I believe that was my instinctive, fight-or-flight response based on System One.

Somewhere along the way, my System Two found a more effective approach.  When asked a question, instead of rushing into the answer, I would pause and repeat the question to make sure I understood it.   This also helped others in the audience hear the question.

At the same time, I was thinking about whether I knew enough to answer the question.  If I didn’t, I said something like, “That’s a good question.  I haven’t been asked that before and I’m not sure I can give you a good answer.  Let me check that out and find the answer for you and get back with you.”

It seems to work better than making up stuff or thinking out loud.

Markets in Everything: Souls

In this post, the Freakonomics blogger Stephen Dubner posts an offer from Caleb B. who is looking to buy souls for $10 to $50.

Here’s his offer:

…what is it about the idea of a soul that even people who confess to not have one are hesitant to sell it? I have been trying, for the better part of ten years, to buy a soul. I’ve offered a dollar amount, between $10 and $50, for someone to sign a sheet of paper that says that I own their soul. Despite multiple debates with confessed atheists, no one has signed the contract. I have been able to buy several people’s Sense of Humor and one guy’s Dignity, but no souls. Additionally, will any Freakonomics reader take me up on this? I’m willing to spend $50 on souls.

One fellow, Jared, says he’ll take the offer:

Caleb B., I will absolutely sell you my soul. To be fair, this won’t preclude me from selling it again to other suckers who (a) believe in souls and (b) believe they can be readily transferred on purchase. To be clear I’m offering because I don’t believe (a).

Or does he?

In my opinion, Jared’s conditions make this a non-sell since he’s reserving the right to sell his soul again to someone else.  In other words, he’s trying to take Caleb’s money.

With these conditions, it would be easy for Jared to get his soul back if he ever decided he’d like to.  He’d just need to find a willing person to sell it to…again… and then buy it back from them.

I love Caleb’s approach.  It taps into what economist, Paul Samuelson, called revealed preferences or, as non-economists say, putting your money where your mouth is.

That is, we say we will behave one way and then we behave differently when we face the actual consequences.

Being wrong isn’t bad

I listened to two podcasts in row that happened to touch on the subject that inspired me to start this blog — changing one’s mind.

I’ve always been fascinated by events, arguments, rhetoric, conversations and observations that get people to reconsider their previous ideas on how things work and possibly change their minds.

The first podcast was a Dennis Miller Show podcast of his interview with David Horowitz from September 28.  Miller and Horowitz were discussing the liberal mindset and Miller makes what I think is an apt description of folks who have difficulty changing their mind (and not just liberals).

Miller says (emphasis added):

I don’t view it as a craziness. People are too easy on them when they say they’re crazy. I view it as an obstinacy, a non-curious obstinacy that infects their lives.

I can’t tell you how many people have said to me, ‘how could you work with O’Reilly?’  I go, ‘You ever watch the show?’  They go, ‘No! I wouldn’t watch that show!’

Non-curious obstinacy.   I like that description and I like Miller’s example.

When you encounter folks with a non-curious obstinacy, it’s not worth discussing whatever it is they are going on about beyond asking if they’ve ever given it a try or if they can describe specific examples on which they’ve based their conclusions.

More often than not, the answer is ‘no.’   If so, you can respond, ‘let me know when you can provide specific examples and I will be happy to discuss it then.  Now, let’s talk about something else.’

The second, a Freakonomics podcast, The Folly of Prediction.  The show host, Stephen Dubner was speaking with guest, Phil Tetlock, psychologist at Penn.  Tetlock has extensively studied folks, especially ‘experts’, who make predictions about things ranging from the economy, the stock market, politics and sports outcomes.  Dubner asks:

  …we’re getting into the nitty gritty of what makes people predict well or predict poorly.  What are the characteristics of a poor predictor?

Tetlock answers (after a brief pause):

Dogmatism.

I think an unwillingness to change one’s mind in a reasonably timely way in response to new evidence.  A tendency when asked to explain one’s predictions, to generate only reasons that favor your preferred prediction and not to generate reasons opposed to it.

Dogmatism (def. The tendency to lay down principles as incontrovertibly true, without consideration of evidence or the opinions of others).  That’s another word for non-curious obstinacy.

Folks don’t like to be wrong.  I didn’t like to be wrong, though I have gotten better in this respect.  I still don’t like it sometimes, but I get over it.  We’re trained from a very young age that being wrong is not a good thing.

But, I’m not sure why.  Being wrong shouldn’t be a bad thing.  Just about all learning in life is done based on trial and error.  That is, we try something based on how we think it should work, and then we find out that we were wrong.  We then try it differently, until we find something that does work.

We tend to learn these lessons best where we pay the costs or consequences for being wrong.  I’ve only turned the wrong way down a one way street once or twice in my life.  Now I’m pretty good at checking the signs and flow of traffic before I turn.

We tend not to learn the lessons as well when we don’t pay the direct costs or consequences for being wrong.  Politics is a good example.  I can vote for someone because I like the way they dress or speak, or because he’s ‘better than the last guy’, or because he’s cool, or I better identify with the others who are voting for him.  And, if I’m wrong, I don’t really care.  We were all wrong.  But, we don’t really even have to admit that.  There are plenty of ways for us to explain it away…”things were worse than we thought,” or “at least we had good intentions, we were trying to help, unlike the other side who is only for the fat cats.”