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Sensemaking and Analytics for Organizations

Archive for September 2019

3 or 7, truth or trust

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“It is clear that ethics cannot be articulated.” – Ludwig Wittgenstein

Over the last few years I’ve been teaching and refining a series of lecture-workshops on Decision Making Under Uncertainty. Audiences include data scientists and mid-level managers working in corporates and public service agencies. The course is based on the distinction between uncertainties in which the variables are known and can be quantified versus those in which the variables are not known upfront and/or are hard to quantify.

Before going any further, it is worth explaining the distinction via a couple of examples:

An example of the first type of uncertainty is project estimation. A project has an associated time and cost, and although we don’t know what their values are upfront, we can estimate them if we have the right data.  The point to note is this: because such problems can be quantified, the human brain tends to deal with them in a logical manner.

In contrast, business strategy is an example of the second kind of uncertainty. Here we do not know what the key variables are upfront. Indeed we cannot, because different stakeholders will perceive different aspects of a strategy to be paramount depending on their interests – consider, for example, the perspective of a CFO versus that of a CMO. Because of these differences, one cannot make progress on such problems until agreement has been reached on what is important to the group as a whole.  The point to note here is that since such problems involve contentious issues, our reactions to them  tend to be emotional rather than logical.

The difference between the two types of uncertainty is best conveyed experientially, so I have a few in-class activities aimed at doing just that. One of them is an exercise I call “3 or 7“, in which I give students a sheet with the following printed on it:

Circle either the number 3 or 7 below depending on whether you want 3 marks or 7 marks added to your Assignment 2 final mark. Yes, this offer is for real, but there a catch: if more than 10% of the class select 7, no one gets anything.

Write your student ID on the paper so that Kailash can award you the marks. Needless to say, your choice will remain confidential, no one (but Kailash) will know what you have selected.

3              7

Prior to handing out the sheet, I tell them that they:

  • should sit far enough apart so that they can’t see what their neighbours choose,
  • are not allowed to communicate their choices to others until the entire class has turned their sheets.

Before reading any further you may want to think about what typically happens.

–x–

Many readers would have recognized this exercise as a version of the Prisoner’s Dilemma and, indeed, many students in my classes recognize this too.   Even so, there are always enough of “win at the cost of others” types in the room who ensure that I don’t have to award any extra marks. I’ve run the exercise about 10 times, often with groups comprised of highly collaborative individuals who work well together. Despite that,15-20% of the class ends up opting for 7.

It never fails to surprise me that, even in relatively close-knit groups, there are invariably a number of individuals who, if given a chance to gain at the expense of their colleagues, will not hesitate to do so providing their anonymity is ensured.

–x–

Conventional management thinking deems that any organisational activity involving several people has to be closely supervised. Underlying this view is the assumption that individuals involved in the activity will, if left unsupervised, make decisions based on self-interest rather than the common good (as happens in the prisoner’s dilemma game). This assumption finds justification in rational choice theory, which predicts that individuals will act in ways that maximise their personal benefit without any regard to the common good. This view is exemplified in 3 or 7 and, at a societal level, in the so-called Tragedy of the Commons, where individuals who have access to a common resource over-exploit it,  thus depleting the resource entirely.

Fortunately, such a scenario need not come to pass: the work of Elinor Ostrom, one of the 2009 Nobel prize winners for Economics, shows that, given the right conditions, groups can work towards the common good even if it means forgoing personal gains.

Classical economics assumes that individuals’ actions are driven by rational self-interest – i.e. the well-known “what’s in it for me” factor. Clearly, the group will achieve much better results as a whole if it were to exploit the resource in a cooperative way. There are several real-world examples where such cooperative behaviour has been successful in achieving outcomes for the common good (this paper touches on some). However, according to classical economic theory, such cooperative behaviour is simply not possible.

So the question is: what’s wrong with rational choice theory?  A couple of things, at least:

Firstly, implicit in rational choice theory is the assumption that individuals can figure out the best choice in any given situation.  This is obviously incorrect. As Ostrom has stated in one of her papers:

Because individuals are boundedly rational, they do not calculate a complete set of strategies for every situation they face. Few situations in life generate information about all potential actions that one can take, all outcomes that can be obtained, and all strategies that others can take.

Instead, they use heuristics (experienced-based methods), norms (value-based techniques) and rules (mutually agreed regulations) to arrive at “good enough” decisions.  Note that Ostrom makes a distinction between norms and rules, the former being implicit (unstated) rules, which are determined by the cultural attitudes and values)

Secondly, rational choice theory assumes that humans behave as self-centred, short-term maximisers. Such theories work in competitive situations such as the stock-market but not in situations in which collective action is called for, such as the prisoners dilemma.

Ostrom’s work essentially addresses the limitations of rational choice theory by outlining how individuals can work together to overcome self-interest.

–x–

In a paper entitled, A Behavioral Approach to the Rational Choice Theory of Collective Action, published in 1998, Ostrom states that:

…much of our current public policy analysis is based on an assumption that rational individuals are helplessly trapped in social dilemmas from which they cannot extract themselves without inducement or sanctions applied from the outside. Many policies based on this assumption have been subject to major failure and have exacerbated the very problems they were intended to ameliorate. Policies based on the assumptions that individuals can learn how to devise well-tailored rules and cooperate conditionally when they participate in the design of institutions affecting them are more successful in the field…[Note:  see this book by Baland and Platteau, for example]

Since rational choice theory aims to maximise individual gain,  it does not work in situations that demand collective action – and Ostrom presents some very general evidence to back this claim.  More interesting than the refutation of rational choice theory, though, is Ostrom’s discussion of the ways in which individuals “trapped” in social dilemmas end up making the right choices. In particular she singles out two empirically grounded ways in which individuals work towards outcomes that are much better than those offered by rational choice theory. These are:

Communication: In the rational view, communication makes no difference to the outcome.  That is, even if individuals make promises and commitments to each other (through communication), they will invariably break these for the sake of personal gain …or so the theory goes. In real life, however, it has been found that opportunities for communication significantly raise the cooperation rate in collective efforts (see this paper abstract or this one, for example). Moreover, research shows that face-to-face is far superior to any other form of communication, and that the main benefit achieved through communication is exchanging mutual commitment (“I promise to do this if you’ll promise to do that”) and increasing trust between individuals. It is interesting that the main role of communication is to enhance or reinforce the relationship between individuals rather than to transfer information.  This is in line with the interactional theory of communication.

Innovative Governance:  Communication by itself may not be enough; there must be consequences for those who break promises and commitments. Accordingly, cooperation can be encouraged by implementing mutually accepted rules for individual conduct, and imposing sanctions on those who violate them. This effectively amounts to designing and implementing novel governance structures for the activity. Note that this must be done by the group; rules thrust upon the group by an external authority are unlikely to work.

Of course, these factors do not come into play in artificially constrained and time-bound scenarios like 3 or 7.  In such situations, there is no opportunity or time to communicate or set up governance structures. What is clear, even from the simple 3 or 7 exercise,  is that these are required even for groups that appear to be close-knit.

Ostrom also identifies three core relationships that promote cooperation. These are:

Reciprocity: this refers to a family of strategies that are based on the expectation that people will respond to each other in kind – i.e. that they will do unto others as others do unto them.  In group situations, reciprocity can be a very effective means to promote and sustain cooperative behaviour.

Reputation: This refers to the general view of others towards a person. As such, reputation is a part of how others perceive a person, so it forms a part of the identity of the person in question. In situations demanding collective action, people might make judgements on a person’s reliability and trustworthiness based on his or her reputation.’

Trust: Trust refers to expectations regarding others’ responses in situations where one has to act before others. And if you think about it, everything else in Ostrom’s framework is ultimately aimed at engendering or – if that doesn’t work – enforcing trust.

–x—

In an article on ethics and second-order cybernetics, Heinz von Foerster tells the following story:

I have a dear friend who grew up in Marrakech. The house of his family stood on the street that divide the Jewish and the Arabic quarter. As a boy he played with all the others, listened to what they thought and said, and learned of their fundamentally different views. When I asked him once, “Who was right?” he said, “They are both right.”

“But this cannot be,” I argued from an Aristotelian platform, “Only one of them can have the truth!”

“The problem is not truth,” he answered, “The problem is trust.”

For me, that last line summarises the lesson implicit in the admittedly artificial scenario of 3 or 7. In our search for facts and decision-making frameworks we forget the simple truth that in many real-life dilemmas they matter less than we think. Facts and  frameworks cannot help us decide on ambiguous matters in which the outcome depends on what other people do.  In such cases the problem is not truth; the problem is trust.  From your own experience it should be evident it is impossible convince others of your trustworthiness by assertion, the only way to do so is by behaving in a trustworthy way. That is, by behaving ethically rather than talking about it, a point that is squarely missed by so-called business ethics classes.

Yes,  it is clear that ethics cannot be articulated.

Notes:

  1. Portions of this article are lightly edited sections from a 2009 article that I wrote on Ostrom’s work and its relevance to project management.
  2.  Finally, an unrelated but important matter for which I seek your support for a common good: I’m taking on the 7 Bridges Walk to help those affected by cancer. Please donate via my 7 Bridges fundraising page if you can . Every dollar counts; all funds raised will help Cancer Council work towards the vision of a cancer free future.

Written by K

September 18, 2019 at 8:28 pm

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