How We Make Decisions Matters

By Gerrit Van Wyk.

Don’t open the box!

Jan Spies told a story about a farmer who trapped a leopard causing trouble on his farm, and since we live in an era of nature conservation, arranged to take it to the Nature Conservation office in town to decide what to do with it. Since he had nothing else to transport the angry leopard in, he put it in an old trunk, hauled it on the back of his truck, and started driving. On his way along the back-roads, he had a couple of beers, and by the time he reached the highway had to make a pit-stop. He stopped next to the highway and ducked behind some bushes, and just at that moment, a van full of people stopped next to his truck, grabbed the trunk, and sped off. Then he started laughing, because anyone who lost a parcel to a porch thief knows the first thing the perpetrator does is to open it, and the people in the van were in for a surprise.

The word decide means choosing one from several alternatives. Thomas Sowell in his Knowledge and Decisions argued making decisions is social, and the process followed matters more than the actual decision. A box can contain goods, or, like Pandora’s box, an unpleasant surprise, hence what we decide and how we do so matters.

Billions of people make many decisions on an ongoing basis at home and work every day, based on the local information available to them. We seek additional information from friends and coworkers, if necessary, which, in that setting, means information gathering is low cost. All these decisions add up with consequences at a higher level, which one cannot see at grassroots level.

High-level decisions by managers are based on a bigger picture, but they in turn remain unaware of the information on which grassroots decisions are made, and getting that information is time consuming and comes at a great cost, hence managers typically ignore it. As a result, their decisions create constraints and incentives to grassroots decision making, which, not infrequently, have unintended and unwanted consequences.

In a complex world, it is impossible to have all possible information, hence there is no such thing as a perfect decision. As Simon pointed out, we are obliged to satisfice. The only way out of that dilemma is to rely on feedback about the consequences of the decision, and adjust to and learn from it. Typically, modern private and civil bureaucracies are functional autocracies immune from feedback, and consequently don’t learn.

According to Sowell, we make unconditional one-off decisions with final outcomes based on what we know at the time, or incremental decisions, which means you adjust your decision as more information becomes available; what you know to begin with is different from what you know at the end. The problem with unconditional decisions is they come with an opportunity cost of options not taken at the time, and resources that with hindsight could have been used differently.

Sowell didn’t pick up on this, but this distinction is important. We make unconditional decisions in the West, because we are biased towards a mechanical perspective of reality, which means decisions are things, they can be studied and optimized, there is potentially a perfect decision, and things don’t change, so the consequences of the decision are predictable. As an extension of this, we believe using technology like artificial intelligence can help make us make better and more perfect decisions. We are also action oriented, which means we don’t ask “why” questions, and ignore the consequences of our decisions.

By definition, a complex reality changes all the time, hence what information is available to us also changes, which means it is better to make incremental decisions and adapt and learn as surrounding reality changes, and is changed by our actions. Most decisions affecting us today are made unconditionally by large bureaucracies unresponsive to feedback, and therefore unable to adapt and learn. No wonder the big problems of our time are escalating and becoming bigger.

We delegate political decisions to a government, in Western societies nominally accountable to an electorate, who, in turn, delegate the decisions affecting us to the legal system and civil bureaucracies, who, in theory, is accountable to government, but in practice to no-one. These institutions, without consulting us, make unconditional decisions creating costs and incentives for us, which may be socially and collectively useful, but more frequently is not. The individual cost may be financial ruin, costly law suits, jail time, etc.

Transaction costs differ between individual citizens and small interest groups, and between citizens collectively and political representatives, hence the incentive for politicians is to concentrate benefits on small interest groups, and spread the costs collectively, even when the cost exceeds the benefit. There is a low cost to interest groups seeking benefits, creating a ratchet mechanism for continuously adjusting political decisions in the interest of small influential pressure groups. It pays to lobby.

Legal reasoning shares cognitive biases with the rest of us, because the legal system is a social one, which, as the Innocence Project in the US showed, results in many wrongful convictions. The purpose of the rule of law is to create stability by limiting individual decisions, and delegating them to “experts” applying legal rules and precedents. Its foundation is generalization and categories, rather than solving individual grassroots problems, hence the law makes unconditional, not incremental decisions, which often comes at a cost. Following legal precedent is more important than following facts and finding the truth.

A few years ago, I attended a course run by a senior lawyer, and, because of the subject matter, a preponderance of lawyers in the group. As part of the course, we were shown the monkey illusion. About ten people dressed in black, and ten in white, walk about throwing a ball at each other. The audience must count how many times the people in white touch the ball. In the meantime, another character in a monkey suit weaves in and out between them making dance moves. Around 60% of the audience don’t see the monkey because they focus on the ball, which is human nature. A short while later, we discussed the issue of weight of evidence, and I pointed out that in a court of law, if ten people were to give evidence under oath, six of the ten would say they are certain there was no monkey in the monkey illusion, even though there was, and, in terms of the legal concept of weight of evidence, the court would rule on that, which was met with consternation. As it turns out, real evidence has little weight in the law. Law is not science or logic, and works differently from it.

Legal decisions reduce abstract problems to general rules, and every rule has a goal, for example speed limits are there to create public safety. Breaking the rule results in punishment, which is about breaking the rule, not increasing public safety, i.e., legal rules and legal decisions often become disconnected from their purpose. In short, like politics, the legal system is disconnected from human social complexity.

Bureaucracies have their own agendas, and exist to fulfill these agendas. They determine how problems are defined, and approach them narrowly based on ideologies. Parkinson argued bureaucracies grow, because that increases the power of bureaucrats and the size of their budgets, which means, as Shirky argued, they eventually exist to recycle old problems. Information in rigid hierarchies gets distorted, which means senior leaders rarely know what really happens in their organization. Their unconditional decisions start projects which inevitably result in cost overruns and failure, and, since the market they operate in is not private, there is no market correction or punishment for their failures. They are free to repeat them for as long as they want.

What you end with in modern society is a complex social trifecta of catastrophic proportions. The first is civil bureaucracies, whose aim is protecting themselves, their policies, and their projects. The second is the public.

Typically, middle class citizens benefit most from government, and are therefore interdependent with bureaucracies. A small minority of community leaders identify issues, and then work to get their community to recognize the issue and make it visible, after which they influence politicians to make policy changes and ensure their implementation. Which is where they lose control of the process, unless they know and can influence bureaucratic processes. In consequence, political movements reflect middle class issues and values.

The third actor is politicians, who seek to maximize on votes, and occupy the middle ground to do so. We fear losing what we have more than gaining what we haven’t, which maintains the status quo. Politicians, avoid imposing costs on individual groups, hence spread it, typically through taxes. Political decisions threatening an established interest groups is difficult, hence policy decisions are often made when a decision benefits a distinct local group, and those opposing them are dispersed and resistance ineffective.

In conclusion, the big problems facing us, such as global warming, healthcare, etc., are complex, and therefore need incremental decisions and ongoing collective learning to solve. Opposing it is a very complex social dynamic involving citizens, politicians, lawyers, and bureaucrats, who act out of self-interest based on a mechanistic belief of reality, resulting in one-off unconditional decisions made to make problems go away, not to solve them.

That must change, but, obviously, short of a revolution, it won’t, for the very complex reasons the dynamic exists. The only alternative, is using social complexity principles, to work on the problems at grassroots level by making incremental decisions, adapting, and learning, and let a network effect, or occasionally butterfly effect take over without control.

The problem is, education is also an institution and bureaucracy, and it hides this fact and the skills that go with it from our children and students, who will have to deal with the mess we are leaving them with. We are leaving them a box with some goodies and many nasties, and without the tools to know when to open it and how, and that’s a shame.