What an MBA taught me: Part 3
The biases and incentives challenging our decision making lead to poor outcomes.
Good morning. This is working theology.
Tonight I graduate from a years-long MBA program that I’m ready to be over. Yesterday I wrote about the knowledge problem and how difficult it is to accurately predict what will happen in the future, especially when using statistics and data.
Biases and incentives
Unfortunately, the general population—and even prominent business leaders, journalists, and politicians—aren’t trained in statistical analysis to isolate variables in such a way. Leaders, even academic experts, have their own biases and incentives, after all.
This is because nowadays rhetoric is more powerful than facts, something Thomas Sowell has also taught me. Few have the time, attention, or incentive to find the truth buried in complex issues like climate change, taxation, inequality, education, healthcare, and so on. Even if they do have the time and aligned incentives, they’re plagued by the knowledge problem discussed yesterday. So, we get by on rhetoric that sounds nice but fails to accurately represent reality.
This is partly due to the economics on which media and the internet is based. Marketers, journalists, and other creators emphasize FUD—fear, uncertainty, and doubt—to capture users’ attention. That’s because revenue from media and the web is based largely on how many people read the content, not whether that content is true. Consider the spread of misinformation over the last several years. One book called Subprime Attention Crisis explains this in some detail, arguing that the economics underpinning the web will eventually collapse much like the subprime mortgage crisis.
Again, people have limited time and attention, especially on the internet. So, marketers and journalists have to catch your eye. To do that, they have to sound bombastic, like the world is coming to an end. The topic at hand isn’t complex or nuanced with many intelligent thinkers on various sides—no, it’s a crisis. The solution is simple. Someone should do something. Here’s how The Times’ opinion column appeared Monday: “The world is on fire … civil war … the climate crisis is raging.” It looks like this every day.
Marketers and salespeople use an approach called the Challenger Sales Model to “drown” their prospects in stats to drive urgency. “Data-driven” leaders are moved by these stats, not thinking about the many problems inherent in data, and even the collection of data, like cognitive and observational biases, much less the analysis of that data, something one academic noted in his book The Tyranny of Metrics.
The thing is we have to use rhetoric like this because we’re limited creatures. We need abstractions because, as one ethicist said in a conference I attended a few weeks ago, we have to use nouns. We’re not omniscient creatures, so we conceptualize abstract principles and simplify them to transmit information from brain to brain. Charts are visual aids that help do this more quickly, since our brain processes images faster, but not necessarily more accurately. Fear is processed faster too.
Because of these ideas, I’ve become a bigger believer in the power of markets. Thanks to Hayek, Friedman, Sowell, my economics, finance, and accounting classes, and many other things over the last few years, I think the better “solution” is to distribute information quickly through the price system, entrepreneurship, and market-oriented processes to regulate human limitations and to make progress against the challenges facing our species.
That’s why I’ve also become a bigger believer in growing trends toward decentralization in general, like cryptography and blockchain technology. I’m currently reading Token Economy and trying out decentralized apps for writing and other things. I’ll keep you updated on those discoveries.
Stories and theology
Anyway, in some strange twist of fate, business school has helped me see the value of stories and the importance of theology, which were the subjects of my previous degrees. In a world that’s built on rhetoric rather than reality, stories become currency.
But as you know, the end of the story is important: Will they end up together happily ever after, or will it devolve into some dystopian nightmare? That’s where theology comes in. What are we all doing here anyway, and where are we going?
To help us with these abstractions of reality, we build our knowledge on presuppositions about the universe. A presupposition could be something like “humans are inherently good” or “there is no ultimate meaning.” These are the ideas that pre-suppose assumptions about the world before we begin to reason or know anything at all. This is a priori knowledge, something you learn about while studying epistemology. Relatedly, theology used to be known as the “queen of the sciences” because it forced philosophers to think about the ends as well as the means of their ideas.
We all believe these kinds of deep, embedded stories about the world around us. We may believe greedy capitalists are at the heart of our economic woes, not thinking that market-based capitalism is the main way the human race has brought itself out of poverty. We believe politicians and regulators can save us from our sins, not thinking that politicians and regulators have their own sins and incentives that may in the end make matters worse. We believe that valuations are driven by mathematics in DCF models rather than the stories themselves, though it seems the stories we tell ourselves more often than not drive what we do with our money. See, for example, Nobel-laureate Robert Schiller’s Narrative Economics or finance guru Aswath Damodaran’s Narratives and Numbers.
In the kind of world I’ve been describing, which business school has helped me see more clearly, I’ve learned that, at the end of the day, I just want to spend more time with my wife. I want to be at home with her, reading and writing, having dinner parties with friends and family, and generally being more focused on others. That’s the next thing I want to learn: the importance of giving and valuing others more than myself. I wish there were a degree in that.
As always, thanks for reading. Stay tuned for more on this journey into working theology. See you in the next chapter.