Managing Excerptations: Establishing A Culture of Observation

Observation management Leadership Economics Experimentation

I started my blog to kick my non-writing habit. I've now got enough material to start blocking out a book (hooray!). So while I'm doing that, I thought I'd start a small series looking at some of the books that have influenced me.

"Managing expectations" is one of my least favourite managerialisms. I cringe whenever I hear it. Expecting is about hope, which is the only thing that keeps many professionals going. We take what we can from life and do our best with it.

So this series is about some of the excerpts that caught my eye over the last six months. They're part of what gives me hope about the profession of management.

I studied late in life. I had already formed my basic views on how the world worked by the time two events coincided in my life: I started studying economics and I started working with economists.

It was a heady time. I felt special. I felt smart. I was surrounded by people saying really smart things. It took me ages to catch up. That's because I spend time checking out where, when and from whom ideas came from.

But there were some economicisms that I took a position early on. That people were rational maximizers. Nothing in my life to that point had led me to be believe that people, that is 'we', are either rational or maximizers.

So that was the first crack in the edifice of belief. The second was when I started hanging out with mathematicians who had very poor views of the math at the heart of some of the principal economic models. But that's another story.

There is a tendency of people in groups not to notice the obvious. My sense is that it's a combination of social herding and sunk costs. People spend a lot of time and money studying stuff for high profile jobs. Questioning the validity of the stuff they studied raises doubts about everything that came before. Our brains and egos don't like that.

I got a lot more comfortable with my relationship with economics when I came across Richard Thaler. Thaler (an economist) wrote in his 2015 book 'Misbehaving: the Making of Behavioral Economics' about the predominance of economics,

"Nevertheless, this model of economic behaviour based on a population consisting only of Econs has flourished, raising economics to that pinnacle of influence on which it now rests. Critiques over the years have been brushed aside with a gauntlet of poor excuses and implausible alternative explanations of embarrassing empirical evidence."

Ouch. Tell me how you really feel Richard. Ok he says,

"We don't have to stop inventing abstract models that describe the behavior of imaginary Econs. We do, however, have to stop assuming that those models are accurate descriptions of behavior, and stop basing policy decisions on such flawed analyses. And we have to start paying attention to those supposedly irrelevant factors, which I will call SIFs for short."

The SIFs are things that (i) get taken out of economic models because they break the models and (ii) help us understand how and why we have created the world we have. In other words, SIFs are actually really, really important.

The book is a highly entertaining and informative romp through the era of crumbling confidence in the high priesthood of economics. My view is that Thaler and co. have helped economics find its proper niche by inviting it to leave the niches where it doesn't belong.

But I'm a management professional and I read this stuff to learn about organizations. And Thaler has some great things to say,

"Most organizations have an urgent need to learn how to learn and then commit to this learning in order to accumulate knowledge over time. At the very least this means trying new things and keeping track of what happens. Even better would be to run actual experiments."

"Good leaders must create environments in which employees feel that making evidence based decisions will always be rewarded, no matter what outcome occurs. The ideal organizational environment encourage everyone to observe, collect data and speak up"

What more need be said? Especially in an era of management buzzword bingo madness, establishing a culture of observation and experimentation might be the most responsible thing a leader does.