Another Book

 

By me.
You might be able to guess what it’s about.

As a deep evolutionist — Dawkins/Dennett style extended phenotype, it’s pretty clear that the human monkey (remember monkeybrains) is built to function in a ceremonial fashion.   However, the modern rationalist/managerialist tradition has left that pattern behind, and asks us to do solo work and go to worthless meetings instead.

Our book addresses the question of how to bring Ceremony BACK into the workplace, and our lives in general, where it belongs.

The Principal Agent Problem

I read something or other last week about “skin in the game”, maybe some Taleb stuff, and it stuck with me…I’m now wondering if the principal-agent problem and skin-in-the-game aren’t two aspects of the same basic problem.

The principal-agent problem:   Principal P hires Agent A to solve some problem.   But…what is good for P is different than what is good for A.  So, P ends up paying A to do what A wants, rather than what P wants.

This is an enormous problem in stock trading (bonus structures), corporate management, representative democracy, and roughly any form of political organization where someone makes decisions nominally in someone else’s best interests.

Skin-in-the-game is theoretically a different problem.  When unelected regulator R makes a rule that impacts Business B and Consumer C, they almost always make bad decisions because the decision they make doesn’t impact them.   They may be trying to make a best decision, but they have no skin in the game, and therefore their level of effort is less than optimal.

And yet a third problem in the category is deciding / paying mismatch.  The fundamental error in the insurance industry (and the education industry) is a mismatch between who decides and who pays.   In insurance in the USA, doctor D decides without paying attention to costs, and Insurance company I pays .   This leads to a bit of a problem on costs.  In Europe, the bureaucrat decides, and the taxpayers pay.  The costs here appear to increase at the same rate as in the US, but from a lower baseline.   In the Kaiser system, the insurance company and the doctors are a single group, so the decide/pay line is somewhat less bad.   In Singapore or in HSAs, the individual decides and pays…which is why it’s the best cost-management system for health costs in the world, along with some of the best outcomes.

In all 3 cases, there are individuals (A, R, D) who are making most of the decisions (in a context) that impact the other players in the scene (P, B, C, I), and whose motivations aren’t aligned.

I think there’s a lot of systems with this structural problem.   Might ought to look at the systems and run analysis.

Who decides?
Nominally, who is this benefiting?
What factors (feedback systems) are in play to make sure that the decision benefit the nominal beneficiaries?

Hume, Hayek & Hanson

When asked to summarize my position on one foot a la Hillel or Rand, I choose neither a phrase nor a saying, but rather 3 alliterative names.   Hume, Hayek, and Hanson.

Hume is the greatest of the philosophers.  All of philosophy can be properly understood as philosophy before Hume and philosophy after Hume.    Before Hume, the question, roughly, was “What is true?”  Since Hume, the question has been “How do you know what is true?”  All of continental philosophy is a response to Kant’s attempt at a response to Hume.   All of Anglo-American philosophy is an acknowledgement that Hume is roughly correct, and how to get around it.

Hayek is the great thinker among the economists.     It took me forever to actually read Hayek, but for 10 years, every other time I encountered a new, impressive position, I noticed that the author credited Hayek for much of the thinking.   Eventually I read the master.    Hayek is best known for the notion that evolutionary systems create information that did not and could not exist without the intermediate interactions.   His most famous line, specifically, is a proof that an omniscient God doing planning could not successfully compete against the market for the goal of satisfying human wants.    The market is better than God could be.   Taking that even ten percent seriously can change what a person believes about everything.

Hanson shows the way to asking better questions.   The joke is:  “Contrarian?  No, meta-contrarian.”  But Hanson is one of the great thinkers of our era.   Not so much because I agree with all his conclusions (I accept most of them).   More because Hanson asks better questions than anyone.    He asks what is true.  He asks how to find out.  He asks how to design systems to find out.  And then he asks why no one cares?  And what do they care about instead?  And how to design systems that make the world better while satisfying decisionmakers.     And he does that about every question I’ve seen him ponder.  Hanson’s brilliance is: “Your question isn’t good enough”.

Size matters

Among the most interesting features of the modern world is the differing quality of various governmental units throughout the world.   The Danish, Swiss, and Singaporean governments appear to work very well.   The  Chinese, Indian, US, and Russian governments appear to work somewhat less well.  All assuming that serving the populace is the goal, and correcting for per capita GDP.

Why?

——Relevant Aside——
In my day job, I’m a software process consultant, focused on software process delivery.  And I’ll happily pair in and sling code with you in whichever language you prefer, though it might take me a couple minutes to catch up on Lisp or Smalltalk.   Among the most notable features of my job is that I’m asked to go into very large organizations (who can afford me), in order to help them try to capture the Agility of very small organizations who did things right.

And the single thing I’ve learned in the last 10 years doing this thing (’07.  Yikes) is that size matters.   Transformations of large organizations is fundamentally different than transformation of smaller organizations.   Indeed, there are layers and layers and more layers of difficulty in turning organizations of 100,000 people, as compared to 1,000 people, or 10 people.

In the Agile community, one of the founders of the movement, Alistair Cockburn, built, not a methodology, but a framework for choosing methodology based on project/product characteristics.     A 5 week project, 3 person project has an appropriate methodology involving ONLY 1 room and a door that closes.    A 10 year, 300 person effort might ought to have a bit different set of controls.    If you use the 500-week method for the 5 week project, it will probably take 45 weeks.   If you use the 5-week method for the 500 week project, you’re 99.3% guaranteed to fail utterly.   Yes, other factors matter besides length and manpower, but those are pretty strong indicators for what you ought to do.  The factor I personally use first to choose between methodologies is:   What’s your goal:

Faster delivery?  Ease of change?  Better large-group Coordination?       Each goal has more and less appropriate approaches.
—————-

So… where’s the analysis of Organization size as it applies to governance?
Notice anything about the best governance in the world?   There are 3 countries, each listed by someone as brilliant governance…and they’re each tiny.    Smaller than metro Chicago. Perhaps someone should study this phenomenon.   And perhaps one should abandon hope that a large group of 320 million can get the quality governance one expects of a 5-million person city-state, a 5-million person small country or a 8-million person aggressively federalist system where most decisions are made at the 50,000 person city level.

Yeah…so all that is another plug for federalism.   Size of governing unit matters.   Probably via payoff.   In 5 million people, all of whom live within 30 miles of one another (Singapore), you have a bit different of a problem than 320 million people who mostly, but partly don’t, live within 3000 miles of one another.

Communication layers, Public Choice strength on population, financial impact of regulations, anonymity and reputation concerns, common culture…they’re all very different between Denmark and India, even Singapore and China.

Solutions?

I’m in favor of separatism.   I’d love for California to secede.   And Texas.   And then for Austin to secede from Texas.   And then Cedar Park to secede from greater Austin.    But in the absence of my preferred solutions, I’ll take real federalism.  Swiss variety, modeled on historical American, preferably.

https://www.washingtonpost.com/news/volokh-conspiracy/wp/2017/01/03/how-federalism-can-help-save-the-failing-marriage-between-the-red-and-blue-states

But we’d all do a lot better if we stopped pretending that families could work the same way as companies, or as cities, or as states, or as nations… Size matters a lot.   Any discussion of policy that doesn’t take size into account appears, to this commentator, insane.

SSC re-invents Hume

“…no testimony is sufficient to establish a miracle, unless the testimony be of such a kind, that its falsehood would be more miraculous, than the fact, which it endeavors to establish”
— David Hume
— An Enquiry Concerning Human Understanding, 1748
— (I can’t find said direct quote in google books, but I agree this is the gist of the matter)

“So. Alternate hypothesis. About one million people view Reddit every day. Let’s assume 10% of those see threads like the above – which were pretty popular and which I think both made it to the front page. That’s 100,000 people. Now let’s assume that even 1/10,000 people on the Internet are annoying trolls, which is maybe the easiest assumption we’re ever going to have to make. If each of those annoying trolls posts one fake story to a thread like that for the lulz, that’s enough for ten really convincing stories per thread – which is really all there are, the other fifty or sixty are just the usual friend-of-a-friend-had-a-vague-feeling stuff.”
— Scott Alexander
— Slate Star Codex: Redditors Lie?
— (Since Moldbug retired, Scott might be the most verbose guy on the internet)

It’s all part of the same problem.  (Warning, Math):

If a drug researcher discovers a drug which has an effect at p<0.001, what are the odds it was a fake discovery?

Of course, the answer is “Not enough information”

But you can’t do a real calculation until you figure out how likely the drug really is to work.
The real decision matrix requires a comparison of how likely something really is to be true, vs how likely it is to be measured true, when false.

If drugs are effective 1/2 the time, and the test is only wrong 1/1000 of the time, then odds that the drug works are pretty good.   Start with 2000 drugs, and here’s what happens

 2000 works doesn’t work
tests true  999  1
tests false  1  999

Look, there’s 1000 cases where the drug tests true, and only one of them is a mistake.  The odds of the drug working, once it tests at p<0.001 is 99.9%

But that’s not the reality.   Far less than 1/2 substances are effective towards our goals.   If we instead suggest that only 1 in a Million drugs are effective towards a goal, then the numbers look very different.   Start with a billion drugs, and here’s what happens

 1,000,000,000 works doesn’t work
tests true  999  999,999
tests false  1  998,000,001

Look, there’s 1,000,998 cases of drug testing true, and only 1 in 1,000 of those is actually true.   Think about that.   If a drug has a prior probability of 1/1,000,000 of being effective, than a test that tells you it is effective with p<0.001 is wrong  1,001/1,002 times.  Prior probability matters.  Prior probability overwhelms the measured probability an awful lot of the time.

At the end of Scott’s piece, he asks: “If you’re like me, and you want to respond to this post with “but how do you know that person didn’t just experience a certain coincidence or weird psychological trick?”, then before you comment take a second to ask why the “they’re lying” theory is so hard to believe. And when you figure it out, tell me, because I really want to know.”

And this is where it gets interesting.   This means that to a first approximation, people’s approach to accepting evidence if they already agree, and dismissing it if they don’t already agree is the rational thing to do.    Does “XYZ study on climate change” change your opinion on climate change?   Odds are strongly no.   If you agree, you now have extra evidence, and you hold the same opinion.    If you disagree, then you dismiss the study as probably being wrong, and don’t change your opinion.    AND this is the smart thing to do. In the short term, anyhow.

In the long term, I continue to insist that the smart thing to do is hold low certainty levels. If new information comes out, update a little bit.   But that’s hard to do.    And odds are the other side is trying to get you to change your mind regardless of the truth.   But still, low certainty levels and actual updating are the best answer I’ve run into.

On the separation of powers

These United States were founded upon a complex balancing act.   Individual rights were a paramount concern at the time of the founding, but it was well understood that any concentration of authority would push against individual rights.   And so the government was set up in balance, with various power centers competing against one another.    The only part of the balance of power taught in the schools this last 35 years (what I remember) is the balance between the Legislative, Executive, and Judicial branches.   However, that wasn’t the only balance built into the foundation of the country, nor even the most important one.    The primary balance built into the founding of this country was the balance between the federal government and the states.

Without taking away from the American Revolutions of 1776, 1860, and 1933, I’d suggest that we start our discussion of the Revolution of 1789, and the enumeration of separated powers there.

In the re-revolutionary US Constitution of 1789, there were a lot of balancing powers built to prevent either the federal government or the states from achieving too much power.

  1. Secession.  The states are understood, much like the colonies, to have the unilateral right to secede from the union.  “When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them …”.   When membership in a federation is secession-prone, the federal government may not push too harshly.    This balance was removed in the revolution of 1860.
  2. Taxation.  The Federal government is explicitly prohibited from taxing the citizens directly.  It may only tax the states, and only by headcount.  A dependency upon the states for funds is, after fear of exit, the single largest constraint on a central federal system.   This balance was removed in 1913.
  3. The Senate.   The Senate was constructed explicitly for the purpose of disallowing large populous states from pushing their Agenda unilaterally upon less populous, but still understood to be independent smaller states.
  4. The Electoral College.  Again, the choice of the president is not understood to be by the population, but rather by the states.   One or two large pushy states should not be able to centrally enforce their agendas upon the rest of the country.
  5. The Senators.  The original Senators were appointed by the states’ governments to the Senate, providing a strong voice for the states’ interests in the federal government.   This balance was removed in 1913 as well.
  6. Enumeration of Powers.  The constitution explicitly lists the powers of the federal government.     Article I, Section 8 enumerates legislative authority.   Article II, Section 2 enumerates executive authority.   Article III, Section 3 enumerates judicial authority.   As far as I’m able to tell, this limit on the enumerated powers of the federal government died in 1937, with Parrish.
  7. Original Amendments.  The 9th and 10th Amendments to the United States Constitution were both built in order to further remind the federal government that nothing except what was explicitly included in the constitution was in the scope of federal power.  Again, it seems to me that this died in 1942 with Wickard.
  8. Amendment Process.  The Constitution may be amended by a majority of the states.  The states may propose an amendment, and then the states may ratify it.

Overall, there were at least eight elements built into the fabric of the federal government for the purpose of balancing the states’ power against that of the federal government. There are still four three [ed: oops]left.

Now, you may be wondering what I think about proposals to drop the electoral college in favor of a national popular vote.   That is left as an exercise for the reader.