Franklin’s Gambit and political decision making

John Kay has written an excellent article on decision making in business and politics. His main point, which he refers to as Franklin’s Gambit, is that, even when we appear to follow a rational process for making a decision, we are often looking merely to justify a decision we have made already.

A typical rational decision-making process would be:

1. Scope problem
2. Decide options for solving problem
3. Decide evaluation criteria and relative weightings of these criteria
4. Establish facts
5. Evaluate options based on facts, criteria and weightings
6. Make decision.

In fact, what can often happen is:

1. Scope problem
2. Make decision
3. Decide options for solving problem
4. Establish facts
5. Decide evaluation criteria and weightings which support decision made in step 2
6. Evaluate options based on facts, criteria and weightings
7. Confirm decision made in step 2.

In particular, the weightings of evaluation criteria are always subjective, so they can be chosen, or adjusted after the fact, to produce any desired outcome.

The Civil Service prides itself in its neutrality, and I have worked with many Civil Servants with impeccable ethics. They produce rational reports to support government decisions. Nevertheless, the conclusions of these reports almost invariably support the ideology of the government of the day, and, when the government changes, the conclusions change as well.

In business decision making, reports have an uncanny ability to reflect the views of the Chief Executive and other senior managers. On-message reports can result in promotion. Off-message reports can end careers.

In personal decision making, we often interpret new facts as confirmation of an existing bias. This extends from major decisions through to the trivial. For example,

• When we cast a vote in an important election, we may choose the candidate with the same background or ideology as ourselves irrespective of the merits of the debate during the election campaign. Alternatively, we persuade ourselves that the candidate who offers us the biggest cut in taxes, or increase in benefits, or the ability to buy our council house at a knock-down price, has the best policies for the broader community
• When a player from our favourite football team dives in the penalty area, we see an obvious penalty. However, when a player from an opposing team dives in the same situation, we see a cheat.

We exhibit this type of behaviour in making even routine decisions, so what happens when we have to make an important decision relating to a complex system which we don’t fully understand, such as the climate or the economy?

A 2011 report (pdf) shows that there is a strong correlation between views on climate change and political ideology. If significant future man-made climate change could be proven beyond doubt, we might require expensive new government interventions and many new regulations on private sector businesses. Of course, it is not possible to prove, beyond doubt, the extent to which the climate will change over the next 50 or 100 years. Neither is it possible to prove, beyond doubt, the impact of specific changes in human behaviour. As a result, people on the right of politics, who don’t like the political implications, are mostly sceptical of climate change, while people on the left, who are more comfortable with the implications, tend to be believers.

Correspondingly, in economics, politicians on the right have decided that the solution to the current economic crisis is for government to spend less, while politicians on the left have decided that the solution is for government to spend more. Despite the fact that economists provide conflicting advice on both the causes of, and solutions to, the crisis, the political left and right agree on two things:

• The correct policies are clear and beyond doubt
• The correct policies are the ones which are consistent with their existing ideological beliefs.

The most interesting aspect of this is that there are at least two conflicting aspects of any solution to the economic crisis: the need to create jobs and the need to reduce debt. Policies to create jobs include increasing government spending to provide a stimulus to the economy, and reducing taxes to encourage entrepreneurs and to stimulate demand. Policies to reduce debt include decreasing government spending and increasing taxes. The policies required to solve one of these problems are the opposite of those required to solve the other. Solving both problems at the same time is anything but clear and beyond doubt.

As a result, both left and right justify their policies mostly by pointing out the flaws in their opponents’ policies:

• The right says that the left prioritises jobs over debt. Increasing government spending in the hope of creating jobs will increase the debt further. This will lead to disaster. Look at Greece!
• The left says that the right prioritises debt over jobs. Reducing government spending in the hope of reducing the debt will increase unemployment further. This will increase the level of unemployment benefit payments, so might not even reduce the debt (or the annual deficit). Austerity leads to more austerity!

Both sides argue convincingly that their opponents’ policies won’t work, so their own policies are the best ones. This is false logic. It doesn’t occur to either ideological wing that they may both be correct in assessing that their opponents’ policies won’t work, and that we may be facing a Sophie’s Choice where there are no good outcomes.

Richard Feynman would point out that a search for the truth, in the face of complex systems which we don’t fully understand, should involve both humility and doubt. These qualities appear to be entirely absent in our politicians and their ideologies.

Wanted – useful economists

There seem to be few hard and fast rules in economics. Take the concept of division of labour. We are all better off when we each take a specialist role and then trade with each other. This works well almost everywhere for all manner of goods and services. However, it doesn’t work when asking and answering big questions on economics.

Suppose I want to know the likely impact on inflation of current government policies. As it happens, I have been asking this question and doing some internet research. Economists are the specialists in this area and they have been working on this question for some time. According to economists, the answer is that hyperinflation is likely; or mild inflation; or no inflation; or prolonged deflation. The economics professional does not speak with a single voice on this question. I am left with the task of deciding for myself which, if any, of these answers is correct. Of course, in order to do this, I will first need to teach myself economics to the level of a Nobel prize-winner and then work through the pros and cons of the arguments for each answer. I may be some time.

I’m being a little unfair here, but only a little, so I have a dilemma. In order to make any progress, I need to use the knowledge of ‘the best’ economists, but it’s not at all clear to me which economists are ‘the best’. I need some criteria.

I have set out some criteria, including basic reasoning, below. I have not made any attempt at balance in these criteria. I do not know enough about the many schools of economic thought to achieve political, ideological or methodological balance.

Criteria for 'useful' economists

Criterion	Description
Mainly macroeconomics	Economics is made up of top-down macroeconomics and bottom-up microeconomics. The questions I want to answer seem to be mostly macroeconomic questions.
Prediction track record	Economists who predicted the current crisis are more likely to have mental models that are consistent with the facts. Of course, they could have predicted the crisis through luck, so a longer track record is desirable.
Recognition of failings	Economists who have acknowledged openly the economics profession’s failings are more likely to be open to identifying problems and making improvements.
Good communications	Economists who talk in plain English are easier to understand than those who use abstract jargon.
Flow diagrams	Economists who use diagrams to demonstrate the flows of goods, services, information and money between the various stakeholders in the economy, are likely to be easier to understand than those who use only words.
Complex systems	Economists who use the language of complex systems are more likely to fit my own beliefs.
Trial and error	In the face of a complex system which demonstrates unpredictable behaviour, economists who advocate the use of experimentation, trial and error, and controlled experiments, are more likely to fit my own beliefs.

I’ve been looking for economists who meet at least some of these criteria for a while. Here is my initial list of the economists from whom I’m hoping to learn:

First cut set of 'useful' economists

Name	Country	Website/Blog	Wikipedia	Twitter	Other
Ha-Joon Chang	South Korea	Website/Blog	Wikipedia
Tim Harford	UK	Website/Blog	Wikipedia	Twitter	More or Less
John Kay	UK	Website/Blog	Wikipedia	Twitter
Steve Keen	Australia	Website/Blog	Wikipedia	Twitter
Richard Koo	Taiwan		Wikipedia
Paul Krugman	USA	Website/Blog	Wikipedia	Twitter
Paul Ormerod	UK	Website/Blog	Wikipedia	Twitter
Joseph Stiglitz	USA	Website/Blog	Wikipedia

As most of these economists have blogs and use Twitter, it’s easy to find their views. Some of them have boisterous arguments with their ideological and methodological opponents, so it’s easy to find alternative views as well.

There are lots of financial blogs on the internet. Here is Time magazine’s list of the 25 best financial blogs.