A fine biography of a very fine gentleman

Posted in Book Reviews on 21 Jul 09 by Diego Azeta


The Authentic Adam Smith: His Life and Ideas

by James Buchan (2006, Norton)

Novelist and critic James Buchan employs his considerable writing skills to sketch out a concise yet intellectually comprehensive profile of one of the leading figures of the Scottish Enlightenment. The person of Adam Smith has long been used as an icon by political conservatives and free marketeers to propagandize their laissez-faire ideology, an anti-Marx effigy paraded before the masses to ward off the evil spirits of social empathy. Doctrinaire stalwarts such as Alan Greenspan —with whom Buchan starts off the book, benignly neglecting the more glaring but superannuated standard-bearers, Margaret Thatcher and Ronald Reagan— relentlessly enshrine Adam Smith as the prophet of liberty, a liberty largely defined by —and mostly confined to— private business interests. Unstated but ever present is the doctrinaire’s message that here is the apostle of absolute truth, for somehow, we are supposed to believe, Adam Smith was obviously infallible.

Buchan does a great service to the contemporary affluent masses by presenting the real Adam Smith shorn of all mythical overtones. What emerges is an even more admirable personage. One of the first myths to go is that of the Promethean economist. Smith was but one among many thinkers in Europe to study the problem of commerce in the mercantilist societies of the preindustrial age. Smith’s renowned work, An Inquiry into the Nature and Causes of the Wealth of Nations, was not the first to broach the subject although it “more or less defined the field of inquiry known as political economy until the late nineteenth century.” Indeed, Buchan points out that Smith borrowed the denominative term from James Steuart’s An Inquiry into the Principles of Political Oeconomy, published nine years before The Wealth of Nations. Which was the natural thing to do, I might add, since Steuart’s choice was the apposite name.

Smith’s most celebrated term, the notorious “invisible hand,” receives due attention right from the start. “The phrase ‘invisible hand’ occurs three times in the million-odd words of Adam Smith’s that have come down to us, and on not one of those occasions does it have anything to do with free-market capitalism or awesome international transactions.” Golly gee whiz, read and learn. The initial occurrence is found in “The History of Astronomy,” Smith’s first philosophical essay which nevertheless was published posthumously. “In this its first avatar,” explains Buchan, “the invisible hand is not a commercial mechanism, but a circumlocution for God.” The second appearance comes in The Theory of Moral Sentiments, considered Smith’s magnum opus until “the rise of political economy amid the battles and factory smoke of the Victorian age.” Buchan argues that “The Invisible Hand here is like the Great Superintendant, or Superintendant of the Universe, or Great Conductor or Benevolent Nature and all the other deistic codewords that litter the Theory.” God by this time has become the more distant and impersonal Providence. The Hand’s third apparition is the only one to show up in the Wealth. Discussing how a merchant would rather invest at home than abroad in order to keep an eye on his capital, thus rendering the greatest possible revenue to his own society, Smith states that “he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” A fitting observation, yes, but not exactly a passionate defense of raw, unfettered capitalism. Buchan gives us a glimpse of what Smith really thought of these merchants:  ” ‘The proposal of any new law or regulation of commerce’ that arises from the merchant class, therefore, ‘ought always to be listened to with great precaution.’ ”  In all likelihood, Smith would have included their modern ideological apologists in the warning as well. Later on in the book the Hand just disappears, substituted by the more rational if less poetic (and rhetorically worthless) “private interests and passions of individuals.”

As with the name for the field of economics and even with the title of his first masterwork (due to his knowledge of L.J. Levesque de Pouilly’s Théorie des sentiments agréables), Smith was in some debt to yet another thinker for the basic notion of the invisible hand: Bernard de Mandeville, author of the controversial The Grumbling Hive, expanded and republished as The Fable of the Bees: or, Private Vices, Publick Virtues, which stirred up in England a veritable hornets’ nest. Mandeville’s point was “that all public benefits arose from vices,” vices being, in essence, self-interest. But “Mandeville wrote like a pimp,” Buchan assures us, “and his blend of moral anarchy and gutter utilitarianism” did not go down well in proper English circles. The brazen satirist had it coming, and Smith dutifully joined in to denounce Mandeville in the Theory, though he did well absorb a clever point or two. This second clever Mandevillean point was none other than the Wealth’s fundamental concept of the division of labor, yet another instance of strategic Smithian borrowing.

Still, Smith was no plagiarist. Ideas do not arise in a vacuum but are always the product of the times, and Smith did develop and refine those ideas legitimately. It was his good fortune that his times were rich in world-class thinkers, beginning with his best friend, David Hume, a giant of modern philosophy who is always at hand in the narrative. (Incidentally, Hume also had already discussed the “partition of employments” in A Treatise of Human Nature, in accordance with the spirit of the times — which in this particular regard stretch all the way back to Plato.) This I found to be marvelous of this book, that Buchan takes the reader on a grand tour of the thinkers and doers of the period in their historical context. All presented in a most elegant literary prose. What more can one ask for? A detailed index? It’s there, one of the best to be consulted. The Authentic Adam Smith is a pleasure to read. I would suggest you savor the feast at your earliest convenience.



Conceptually rich but unnecessarily complicated

Posted in Book Reviews on 11 Jul 09 by Diego Azeta


Complex Adaptive Systems: An Introduction to Computational Models of Social Life
by John H. Miller and Scott E. Page (2007, Princeton)

Complexity is a hot subject. Unfortunately, the language of dynamical systems theory is advanced mathematics, which means that most of the available literature is not readily accessible to lay readers. Educated nonspecialists are left with few options aside from the occasional overview which, typically, does not delve too deeply into the subject matter. Given this state of affairs, Miller and Page’s book would seem to be a godsend.

A stated aim of the book is that of providing a “clear, comprehensive, and accessible account of complex adaptive social systems” for “both academics and the sophisticated lay reader.” Insofar as comprehensiveness, the authors deliver. Readers are first offered preliminary discussions on complexity in social worlds, modeling, and emergence, followed by a more detailed treatment of computational modeling as a tool for theory development and agent-based objects as the recommended means to explore complex adaptive social systems. Then a basic framework of agent-based systems is presented, followed by discussions of unidimensional complexity models and the edge of chaos, social dynamics, evolving automata, and organizational decision making. These topics are largely illustrated with the authors’ previously published models. Finally, conclusions are derived regarding the book’s central theme: the “interest in between” as it pertains to complex social systems (which tend to fall in between the usual scientific boundaries). Two appendices bring up the rear: an agenda for future research in complex systems and an outline of best practices for computational modeling. The thematic coverage is ample and varied, excellent for a general introductory work on social complexity.

Insofar as clarity and accessibility are concerned, however, I find myself in disagreement with the book’s blurbs. Much of the mathematical formalism has been expunged from the discussions, yes, but that by itself does not guarantee enhanced communicability. The logic of the arguments, which in this field is considerable, must now be conveyed by other means, either verbal or visual. The authors do make an effort to explain in words the basic concepts when they begin a new topic. But when they proceed to discuss an actual model, they shift gears. Instead of explaining or illustrating in detail the model’s functional intricacies, they switch to summarizing their findings and present a table or figure that encapsulates the model’s results. Repeated readings of the text are almost always necessary in these cases, but understanding does not always automatically ensue. This approach does not appear to contribute to the goal of making the models “as simple and accessible as possible.”

This situation is not due to writer’s oversight but to a deliberate choice. Prior to discussing their first example model (a computational version of Tiebout’s model), the authors state: “Rather than fully pursuing the detailed version of the model we just outlined … here we provide just an overview.” Fateful words which amount to an announcement of their modus operandi, as the subsequent instances demonstrate. Caveat lector. The reader is also assumed to possess a working knowledge of such things as game theory, elementary combinatorics, and statistics, among others. So brush up on the basics and stay close to a search engine.

Reading this book takes time and some effort; it is not a breezy read. One never gets to see an actual piece of code or even pseudocode, which one would normally expect in an introductory book on computational modeling. The reader is left in a vacuum as to the mechanics of implementation. Still, it is a good book in terms of its conceptual content. However, the inconsistency between the stated aim of providing clarity of exposition at an introductory level and the actual product the reader interacts with detracts from the book’s overall quality. It seems like we are still waiting for the canonical text on complex adaptive social systems.

Note: If you are looking for a general overview of complexity theory intended for a lay audience, I would suggest Melanie Mitchell’s Complexity: A Guided Tour. It is excellent. At the other end of the spectrum, if you’re heavily into power math, consider Complex and Adaptive Dynamical Systems: A Primer by Claudius Gros. It is rigorous.


A gentle introduction to complexity theory

Posted in Book Reviews on 4 Jul 09 by Diego Azeta


Complexity: A Guided Tour
by Melanie Mitchell (2009, Oxford)

Melanie Mitchell has written a wonderful book on a subject that defies simple explanation. Complex systems science, as she aptly refers to the interdisciplinary field commonly called complexity, is admirably presented to a general audience without diminishing the intellectual content of the discussion. The breadth and depth of her exposition are more than adequate to convey a clear notion at an introductory level of what complex systems are all about.

After first illustrating what complexity means through a variety of real-world examples, Dr Mitchell provides a historical background of the principal theoretical bases underpinning complex systems science, namely, dynamical systems and chaos, information and entropy, Turing computation, evolution, and genetics. Following is a thorough discussion of the difficulties of coming up with a universal definition of complexity. Then a number of problem areas are investigated, such as self-reproducing systems (computer programs, DNA, von Neumann’s automaton), genetic algorithms, cellular automata, dynamical information processing structures, actual living systems (the immune system, ant colonies, biological metabolism), analogy making by computers, and computer modeling and simulation as a third way of doing science, the traditional two being theory and experiment. Four subsequent chapters delve into the intricacies of networks, including the alluring mysteries of the ubiquitous power law and the complexification of genetics and evolution. The book ends with a candid appraisal of the past and future of the sciences of complexity.

That Mitchell is able to intelligently expound on such a wide range of technical topics while resorting to but a single mathematical equation (for the logistic map) is a testament to her command of the subject as well as her fluid writing skills. Her editor must have been pleased. (Well, a couple of English sentences logically amounting to mathematical equations were deployed to show a power-law distribution and the formula for the volume of a sphere but, hey, the equal signs were duly avoided!) The end notes, however, do explain the math behind various verbal assertions in the main text.

Complex systems science is the third major attempt to launch an autonomous and self-sustaining field of academic inquiry devoted to this intriguing domain. The first two, cybernetics and general systems theory (both discussed in the book), did not fare all that well. An uneasy feeling that history may recur yet again permeates the atmosphere of the final chapter. It may indeed be the case that complex cybernetic systems is much too rarefied a conceptual domain to ever congeal into a conventional discipline. Yet perhaps that is how things ought to be. For the true value of systems thinking lies in the deep transcendent insights it affords about phenomena, perspectives which traditional disciplines often can scarcely come to fathom.


Rethinking the “Think Again” decision framework

Posted in Book Reviews on 4 Jul 09 by Diego Azeta


Think Again: Why Good Leaders Make Bad Decisions and How to Keep it From Happening to You
by Sydney Finkelstein, Jo Whitehead and Andrew Campbell (2009, Harvard Business)

The authors of Think Again, impeccably credentialed and well versed in management strategy, are eminently qualified to scrutinize the performance of executives and senior managers in making organizational decisions. In their book they discuss numerous cases involving high-ranking decision makers. It is quite sobering, though not at all surprising, to see so many atrocious decisions consistently being made by people who are supposed to be masters of that craft. Evidently, these professionals are nowhere near as proficient as they are usually deemed to be. In view of the prevalence of this situation, it is hard to avoid concluding that, on the whole, top decision makers are no better at doing their job —making the right decision— than would be a randomly selected employee drawn from the ranks of their own organization. Even more troubling is the fact that no other professional field of endeavor seems to suffer, chronically, the consequences wrought by such appalling practicioners.

The book tackles this disconcerting problem by proposing a framework which consists of three parts: a description of how our brains make decisions and how it can be tricked into false judgments, an explanation of four posited conditions under which flawed thinking is likely to happen, and a set of safeguards prescribing how to counterbalance the four sources of error. The brain is presented as a pattern recognition apparatus that employs emotional tagging and one-plan-at-a-time processing to make sense of what’s going on in the world and devise a response to the perceived challenges. Most of that processing, however, is conducted beyond the realm of consciousness, so the hapless (and ostensible) decision maker is in an extremely weak position to question the validity of the brain’s verdicts or its torrent of neural decrees. The clinical evidence sustaining this point is striking: V.S. Ramachandran’s notable work in behavioral neurology is cited on several occasions. See Phantoms in the Brain: Probing the Mysteries of the Human Mind (1998).

Decisions go wrong, state the authors, because of two factors: (1) an individual or group makes an error of judgment (which follows from the above) and (2) the decision process fails to correct the error. Four sources of error, called red flag conditions, are identified: misleading experiences, misleading prejudgments, inappropriate self-interest, and inappropriate attachments (yes, of the type denounced by Siddhartha Gautama). The authors then advance four categories of safeguard to counter the inevitable errors: provide decision makers with new experiences or data and analysis, create group debates which challenge biases, institute governance teams to protect against flawed judgments, and set up extra monitoring processes to track the progress of important decisions.

That is all very fine. But is it an adequate description of and, more importantly, a reliable solution to the problem of faulty managerial decision making? Let’s see.

Consider one of the cases discussed in the book: John F. Kennedy’s handling of the Cuban missile crisis of October 1962. According to the authors, the preceding year’s Bay of Pigs fiasco taught Kennedy a lot, namely, how not to wage war or rattle sabers. This time around, “Kennedy recognized the red flag conditions and created a process that reduced the risk of a flawed decision.” Specifically, “Kennedy set up a decision process to create room for rigorous and multifaceted debate” by forming the ExComm committee of senior advisers. “President Kennedy rejected early options involving air strikes or invasion, asking ExComm to think again to see whether there was a solution that reduced the risks of nuclear war. As a result, they came up with what proved to be the best option: a blockade of Cuba.” (The quotations are from pp. 159 and 160.)

Proved to be the best option?

The 40th Anniversary Conference of the Cuban Missile Crisis held in Havana, Cuba on 10-12 October of 2002 revealed the following: (Source: National Security Archive, George Washington University)

1. US intelligence never located the nuclear warheads for the Soviet missiles in Cuba during the crisis, and only 33 of what photography later showed was a total of 42 medium-range ballistic missiles.

2. The US Navy dropped a series of “signaling depth charges” (equivalent to hand grenades) on a Soviet submarine at the quarantine line. According to the Soviet signals intelligence officer on the receiving end inside submarine B-59, Vadim Orlov, the depth charges felt like “sledgehammers on a metal barrel.” Unbeknownst to the Navy, the submarine carried a nuclear-tipped torpedo with orders that allowed its use if the submarine was “hulled” (hole in the hull from depth charges or surface fire).

3. Exhausted by weeks undersea in difficult circumstances and worried that the U.S. Navy’s practice depth charges were dangerous explosives, senior officers on several of the submarines, notably B-59 and B-130, were rattled enough to talk about firing their nuclear torpedoes, whose 15 kiloton explosive yields approximated the bomb that devastated Hiroshima in August 1945.

That nuclear war was averted was due to extraordinary prudence on the part of the Soviet leadership and naval commanders mixed with an abundance of sheer luck, not to a debate-based decision process on the American side which in several respects was clueless as to pivotal facts. One cannot conclude that just because the outcome turned out fortuitous the decision —or the decision maker(s)— was therefore correct. Had Washington or New York been blown off the map, this book would almost certainly have not declared that ExComm “came up with what proved to be the best option.” The correctness of a decision cannot be predicated on the uncontrollable occurrence of a specific favorable outcome.

The authors go on to claim: “Kennedy found a way of allowing Khrushchev to back down without losing face, by using backdoor Russian contacts to secure a trade: the withdrawal of US missiles stationed in Turkey for Soviet agreement to dismantle the missiles in Cuba.” (p. 160) They repeat that claim on page 168: “… helped him [Kennedy] come up with the idea of trading the missiles in Turkey for those in Cuba.” Those assertions are incorrect. In his letter to Kennedy of 27 October 1962, Khrushchev states: (Source: Letter From Chairman Khrushchev to President Kennedy, October 27, 1962, John F. Kennedy Presidential Library & Museum)

“Your missiles are located in Britain, are located in Italy, and are aimed against us. Your missiles are located in Turkey.

“You are disturbed over Cuba. You say that this disturbs you because it is 90 miles by sea from the coast of the United States of America. But Turkey adjoins us; our sentries patrol back and forth and see each other. Do you consider, then, that you have the right to demand security for your own country and the removal of the weapons you call offensive, but do not accord the same right to us? You have placed destructive missile weapons, which you call offensive, in Turkey, literally next to us. How then can recognition of our equal military capacities be reconciled with such unequal relations between our great states?”

“I therefore make this proposal: We are willing to remove from Cuba the means which you regard as offensive. We are willing to carry this out and to make this pledge in the United Nations. Your representatives will make a declaration to the effect that the United States, for its part, considering the uneasiness and anxiety of the Soviet State, will remove its analogous means from Turkey. Let us reach agreement as to the period of time needed by you and by us to bring this about. And, after that, persons entrusted by the United Nations Security Council could inspect on the spot the fulfillment of the pledges made.”

The point to be made here is this: even the authors, who —individually and as a monitoring team— are deliberately focusing their best efforts at explaining and promoting the Think Again framework as the recommended means of safeguarding against errors of judgment, failed to catch and correct the error. Why should one expect things to be any different in the executive suite? This lapse calls into question the credibility of the entire framework, particularly when it comes to real-time situations where the available information is rarely unambiguous, complete, properly structured, sufficiently precise or demonstrably accurate.

Consider another case from the book: Paul Wolfowitz’s dalliance with questionable ethics at the World Bank. True to their framework, the authors attribute Wolfowitz’s conduct to inappropriate attachments (pp. 129-34). Perhaps this was far too generous a judgment. Other possibilities spring to mind, including outright corruption and, if Wolfowitz’s role in instigating the still ongoing war in Iraq is allowed to figure in the assessment, plain old managerial incompetence. The possibility arises that by pigeonholing the faculty of reason with preconfigured templates of red flags and safeguards, the Think Again framework may actually hinder the process of procuring accurate interpretations of reality necessary for unbiased and efficacious decision making.

That might explain why the authors’ judgment of Admiral Yamamoto Isoroku in the Battle of Midway (chapter 4) seems biased. Their portrayal of Yamamoto as an inflexible strategist bent on carrying out his pet plan irrespective of the concerns of his superiors (which was a factor, though by no means the only one nor the most critical, as shown below) is compatible with the framework’s one-plan-at-a-time assumption. But never is it mentioned or taken into account (1) that Lt. Col. Jimmy Doolittle’s air raid on Tokyo and other Japanese cities seven weeks before Midway had suddenly made the destruction of the American carriers —and therefore, the Midway operation— a top priority throughout the Imperial Japanese military establishment; (2) that the Battle of the Coral Sea, four weeks before Midway, “the first naval engagement in history in which the participating ships never sighted or fired directly at each other,” had conclusively proved that naval supremacy now depended on the aircraft carrier; and (3) that Yamamoto had no reason to suspect that the Allies had recently cracked the Japanese JN-25 naval code — the sole reason why the American ambush at the Battle of Midway ever came to take place at all. The reality of the situation was much more complex than the facile interpretation given in the book, which, as would be expected, happens to conform to the framework’s a priori worldview. In addition to this, the authors’ judgments once again evince being influenced by hindsight. (Sources: Wikipedia; Naval Historical Center, US Navy)

If hindsight serves to prove anything, it would be that Yamamoto’s preoccupation with eliminating the American carriers as soon as possible was indeed rationally justified.

These observations suggest that the Think Again framework could benefit from certain improvements. Interestingly, the main candidate is already listed in the framework, although it is not given the full attention it deserves. The first of the safeguards calls for providing decision makers with “new experiences or data and analysis.” By “data” I understand the authors to mean information. Analysis, however, is the key concept that should be stressed. The author’s mention the point now and then, but only once is there a forceful assertion of its importance: ” ‘Objective strategic analysis’ is close to useless if the key decision makers are not part of that analysis.” Bravo! “Leaders have the responsibility to ensure that those involved in an important decision are [their italics] part of the analysis.” (p. 203)

Executive decision making has traditionally relied much too heavily on judgment and intuition —to wit, personal opinions— which are of limited value when dealing with the complex problems typically faced by modern organizations. Management thinking and practice must adapt to the demands of modern times. It is no longer possible for senior managers to continue acting like brightly garbed generals flaunting plumed headgear while commanding their troops atop handsome white steeds. Those days are gone. Modern-day managers must roll up their shirtsleeves and learn how to make use of the array of instruments available for the modern cockpit. And learn to think like analysts by becoming analytically involved. Resistance is futile. In a fiercely competitive Darwinian environment, ignoring the new rules of the game will only result in more atrocious decisions, which invariably lead to extinction.

That said, I should add that the book is a worthy and enjoyable read, and should figure on any manager’s reading list. There’s plenty of practical advice for the responsible decision maker who values professional competence.

Note: Michael Dobbs’s One Minute to Midnight: Kennedy, Khrushchev, and Castro on the Brink of Nuclear War (2008) re-examines the Cuban missile crisis in the light of declassified American and Russian documents. Hiroyuki Agawa’s The Reluctant Admiral: Yamamoto and the Imperial Navy (2000) is quite possibly the best biography of the man who planned the attacks on Pearl Harbor and Midway. It is now out of print, but used copies are available.



Posted in Uncategorized on 3 Jul 09 by Diego Azeta

Welcome to Decision Modeling Blog
ompanion Weblog to the Decision Modeling Website

The original Decision Modeling site ran at MSN Groups from 20 Aug 2001 till 23 Feb 2009, when MSN closed the service. At MSN, the site combined thematic content with multiple message boards, which allowed for open communications among site members. The old site proved to be quite popular with members and visitors from all over the world. It quickly rose to the number one position in rank on the search engine listings at Google, Yahoo and MSN (the forerunner to the current Bing). Thanks to all members and visitors who made it possible for Decision Modeling to be Número Uno!

The new Decision Modeling opened at Google Sites on 4 Feb 2009 and is still in the process of conversion. The entire site is being rewritten, and there are megabytes of stuff to plow through. Your patience is much appreciated. However, Google sites do not support message boards, so this blog will serve as a stopgap of sorts. Please feel free to post messages about the Website or about decision making in general, and do join in on the discussion threads.

Since we were having problems with spammers at MSN, postings must now be approved before publication. However, please be assured that your postings will not be edited or revised in any way. It’s simply a screen to filter out spam.

Hope you enjoy the new Decision Modeling site and blog.