Surowiecki and attribution error

by Henry on July 28, 2006

Via Dan Drezner, this fun little article by James Surowiecki in the New Yorker.

Airbus’s woes are being held up as proof that it is, in the words of one columnist, “a textbook example of how not to run a commercial enterprise.” The Wall Street Journal explained that Airbus was failing because of its “politicized management,” while the Times suggested that Airbus had to decide whether it was a company or a European “employment project.” … What much of the talk about the inherent weakness of Airbus ignores is that, just a few years ago, it was Boeing that looked fundamentally flawed, while Airbus was seen as the future of the industry. … The problem with such prognostications is that they infer basic truths about a company’s prospects from its short-term performance. … People are generally bad at accepting the importance of context and chance. We fall prey to what the social psychologist Lee Ross called “the fundamental attribution error”—the tendency to ascribe success or failure to innate characteristics, even when context is overwhelmingly important. … Because we underestimate how much variation can be caused simply by luck, we see patterns where none exist. It’s no wonder that management theory is dominated by fads: every few years, new companies succeed, and they are scrutinized for the underlying truths that they might reveal. But often there is no underlying truth; the companies just happened to be in the right place at the right time.

This applies not only to judgements about the success of companies, but to judgements about the success of countries. A few years ago, the political scientist Peter Katzenstein went through a couple of decades worth of those special issues that the Economist runs on particular countries for his own amusement. He found that there wasn’t any long term consistency in judgement – a country cited as a model of how to create a thriving economy in one special issue might be cited as a prime example of political dysfunction the next time round, and back in the good books a few years later. This isn’t a problem that’s specific to the Economist; it’s a more general one of how the political wisdom on the sources of economic success is incredibly unstable. A couple of decades ago, the shelves were filled with books on Japan Inc., and nasty xenophobic bestsellers like Michael Crichton’s Rising Sun claiming that Japan was going to gobble up America unless it fought back. Before that, there was a lot of talk about Modell Deutschland as the way forward. Und so weiter. We don’t know very much at all about the root reasons why economies succeed or fail, for some of the reasons that Surowiecki cites. Countries too can happen to be in the right place at the right time, and may find their luck running out unexpectedly when conditions change.

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1

Adam Kotsko 07.28.06 at 3:15 pm

Would this problem be lessened at all if people viewed economic “success” less in narrow terms of growth and more in broader terms like social equality and opportunity, etc.? It seems like much criticism of European economies stems from the fact that they are growing less fast than the US, even though the growth the US has experienced (at least most recently) hasn’t done most people a lot of good.

2

yabonn 07.28.06 at 4:47 pm

It’s no wonder that management theory is dominated by fads

I ‘ve alway been fascinated by the wackiest parts of the “management” sections of bookselers.

There’s more to this genre than attribution error, imho. It’s more like, broadly, this sub-sub-genre is the story of people who don’t have time, and who just have to make sense – or to look like they make sense – of something random, and out of their control. Astrology, wacky Dilbertian management theories, or both, ensues.

Hope there are studies about this, i’m sure a history of this rubbish would be very interesting.

3

jet 07.28.06 at 4:50 pm

Adam Kotsko,

Why is it broad to view it in terms of relative markers like social equality and oppurtunity, and narrow to view it in terms of absolute growth?

If the US averages 1% more growth than France, how many years will it take until the 1st decile in the US are better off than the 2nd decile in France? Is this a valid way to measure things? Ethical?

4

John Emerson 07.28.06 at 5:21 pm

Someone should make a collection that Sweden is ready to collapse into bankruptcy because of socialism. I heard my first such prediction in about 1955.

Someone oughta dig up the proof that the average Swede is poorer than the average Alabaman too.

Yabonn: management theory, investment strategy, new age religion, prosperity theology, self-help, pyramid marketing, futurology, and science fiction / fantasy are increasingly

5

Jim Harrison 07.28.06 at 5:21 pm

Since economic measures such as GDP are merely figures of merit, there is no such thing as absolute growth. Economics ain’t physics. and no amount of dimensional analysis will reduce its units of measure to centimeters, grams, and seconds.

6

mcd 07.28.06 at 5:22 pm

They weren’t prognostications. What it indicates is that lots of American rightwingers would like Airbus to fail. Hence the sneers about “politicized management” and “European employment agency”. Likely referring to the same thing…

7

John Emerson 07.28.06 at 5:25 pm

Jet: Distribution. Marginal utility of money.

And Kotsko’s criteria are in fact broader because, of course, they would have to take into consideration the factor you mentioned, as well as the factors he was adding. He believes that “a rising tide raises all boats” should not be allowed to be the first and last word on the subject.

8

John Emerson 07.28.06 at 6:13 pm

4: “are increasingly **different versions of the same thing**”.

9

Bill McNeill 07.28.06 at 6:53 pm

Re 2: There is a powerful human drive to have an explanation for everything. Explanations are comforting; they give me a grasp of a situation and act as a guide to future behavior. Whereas if I admit that a particular phenomenon is due to chance, that’s like throwing up my hands and saying I don’t know what to do about it. And who wants to own up to more helplessness than is absolutely necessary?

There’s a great article called “The Perils of Posthockery” which points out not just the dangers of this drive for explanation, but also its utility and appeal.

We often blur the crucial distinction between the generation and testing of hypotheses. In the context of discovery, our outstanding pattern-recognition and reasoning abilities are indispensible. We can detect potentially relevant environmental cues and formulate sophisticated hypotheses about underlying causal relationships. However, unaided judgment can fail us in the context of verification. We do not routinely subject our cherished beliefs to rigorous tests, and we often accept the first preferred explanation as fact. Particularly if this explanation is interesting or entertaining, confidence may become unshakable.

This article gets passed around the Linguistics department at the University of Washington as a warning of how easy it is to do bad science, but its lessons apply here as well.

10

Andrew 07.28.06 at 7:05 pm

A couple of decades ago, the shelves were filled with books on Japan Inc., and nasty xenophobic bestsellers like Michael Crichton’s Rising Sun claiming that Japan was going to gobble up America unless it fought back
I bet we’ll all feel something similar about the current China hype in maybe 15~20 years. The same sort of problems that have bogged Japan down until recently are the sorts that could bog China. Then maybe we’ll all be excited the coming Indian juggernaut!

11

John Emerson 07.28.06 at 8:18 pm

There is a contrary folk-psychology drive expressed as “shit happens” or “one goddamn thing after another”. Some historians honor this principle.

The folk obsession with explanations and reasons is especially strong in people with a social science background. I was just reading something by Max Weber about music, and he seemed to pull explanations out of his butt from time to time. (More at my URL).

Ethnomethodology is like a collection of proverbs — every principle coexists with its opposite principle. At best social science replaced the proverbial hodgepodge with something exact and accurate, but at worst social science just gives scientific sanction to its own narrow selection of folk wisdom.

12

P O'Neill 07.28.06 at 9:34 pm

Let’s get back to Airbus, the takeoff point, so to speak, for the New Yorker article. In this case, I think the WSJ/Economist crew have a point, notwithstanding the more general fallacy that it may exhibit. The double-decker jumbo was a dreadful idea from the word go — it was helped along by TV shows obligingly running computer simulations of a plane with gyms and bars and a general sense that everyone would be travelling first class, but in fact this was an 800 seater plane (not 550 as the marketing videos had it) — and it was never clear who exactly would want to fly in it, what airlines would want to operate it, what airports could accomodate it, and how many airlines could profitably operate it once the thrill of gushing news coverage over the maiden flight had abated. I’m not sure such a fiasco could have happened in a more commercially-minded company.

13

Adam Kotsko 07.28.06 at 9:41 pm

A single factor = narrow
Many factors = broad

This is not hard.

14

a 07.28.06 at 11:40 pm

I think we should wait for Boeing to deliver its Dreamliner as promised and on time before rushing to any conclusions.

15

jim 07.29.06 at 2:38 am

I’m waiting for market capitalism, free or fair, to be inserted into the “funamental attribution error” column, so we can quit talking about competitive management fads and get down to cooperative social solutions.

I’m still waiting.

16

bi 07.29.06 at 4:10 am

Has anyone noticed the striking similarity between this and the Maharishis’ “om” experiment? As in, look, this guy did X and he achieved result Y, ergo X causes Y — or does it. And similarly, what’s sorely needed is a large-scale comparison across lots of companies/countries over a large span of time, to determine measures tend to lead to success and what measures tend to lead to failure.

jim: well, the “Vast Left-Wing Conspiracy = cause of all our failures” types already beat you to it.

17

Tim Worstall 07.29.06 at 4:26 am

“We don’t know very much at all about the root reasons why economies succeed or fail, for some of the reasons that Surowiecki cites. Countries too can happen to be in the right place at the right time, and may find their luck running out unexpectedly when conditions change.”

Well, yes and no. Depends at what level we’re talking about. The different flavours of a mixed economy, Sweden, Japan, UK, US, Germany and so on, yes, a worthy point.

At a more basic level we do know some answers. Wealth is created by the division of labour which comes about through trade for example. Maddison has pointed out that there’s never really been substantial growth in GDP per capita without at least some of the basics of market capitalism.

GDP may not be something people some people worry about, preferring to concentrate on other factors, but at this very basic level, as I say, we do have some answers.

18

bad Jim 07.29.06 at 5:09 am

My partners and I early on attributed our surprising success to luck – the right product at the right time in the right market with the right competitor and hiring one great employee after another. There was, of course, considerable expertise at work as well, but I don’t think I’d apportion the entire credit for my fat stash to that.

19

aaron 07.29.06 at 5:47 am

I expect to find airbus’s problems are that it went big when it should have shot for speed, destination flexiblitiy, and efficiency.

20

JR 07.29.06 at 7:32 am

Boeing is the US’s second largest defense contractor. Its revenues from military contracting are greater than those from commercial airplane sales. So tell me again, which of these companies operates in a commercial marketplace and which one is dependent on political lobbying and government spending?

21

jet 07.29.06 at 9:44 am

Adam Kotsko,

Single factor ⊆ Many factors.

Simple enough for you?

Or are you now going to argue that the bottom decile looking for 1,000 calories of food per day is comparable to a bottom decile looking for a 2nd car and air conditioning?

Snark away tough guy.

22

jet 07.29.06 at 9:46 am

That should be

Many factors ⊆ Single Factor

23

tzs 07.29.06 at 11:42 am

I remember being in Japan when the whole Japan Inc. thing came around. Those of us gaijin working in Japanese companies or the Japanese government were passing around Crichton’s book, saying “you’ve got to read THIS!” and laughing our asses off.

Corporate groups on all sides find it a very efficient form of lobbying to Warn About the Foreign Bogyman, helped on by the myriads of economists and policy makers who are happy to churn out whatever opinion is most desired. For many years I watched a tit-for-tat volley between Japan and the US when it came to the semiconductor industry: the US “reacted” to the Japanese push by forming SEMATECH, the Japanese policy makers then churned out reports breathlessly warning how Japan was going to go under due to SEMATECH and how Japan needed a National Project in return, then the US reacted to that….

24

bi 07.29.06 at 11:52 am

jet’s totally confused.

A GDP figure is meaningless if you don’t also consider the inflation rate. What’s so impressive about a doubling of one’s salary if rice costs thrice as much as before?

25

Wax Banks 07.29.06 at 11:55 am

Mark Schmitt has spoken of this structural phenomenon w/r/t political punditry and ‘straight-line projections.’ If you’re not reading Schmitt, by the way, he’s a sane and sensible commentator on liberal/Dem politics and policy, less focused on day-to-day minutiae (e.g. mini-scandals) than Josh Marshall but similar in disposition.

26

John Emerson 07.29.06 at 3:10 pm

Has anyone ever built a capital-accumulation model based entirely on luck?

Suppose 10 entrepreneurs take their life savings and go into competition, except instead of starting businesses they put the money into gambling or duelling. Eventually one entrepreneur has 10 life savings, which would be a big profit and a healthy chunk of dough. Then he starts his business.

This isn’t a realistic model at all of course, I don’t claim that, but in businesses like the restaurant business success has a major, major factor of luck, and unsuccessful businesses often give a sort of subsidy to unsuccessful businesses.

27

jet 07.29.06 at 3:27 pm

bi,
I’m certainly confused about your point. Are you saying that modern GDP numbers aren’t inflationary adjusted?

28

Michael Sullivan 07.29.06 at 3:58 pm

26 — as a business owner myself and one who deals primarily with small business customers, I’ve formed the opinion that business success is much more like skilled gambling success than most people want to believe. Your skill weights the odds in your favour (or disfavour), and then you roll the dice.

That said, if you know your stuff and have enough capital reserve, you can withstand the variance. But it takes a *lot* of capital to be sure of withstanding the variance of projects that make a meaningful return. Enough so that you don’t really *need* to work to earn money. You can just provide your capital to somebody else in the stock market.

I don’t see the point to pooling resources with zero sum gambling as you suggest though. I suppose if you really need 10 life savings to capitalize some business it might make some sense.

What would be a lot better is 10 entrepreneurs putting all their money into a pool, starting 10 different businesses and then splitting the profits. That way, if they are all really good, chances are that one company does quite well and pays for the many failures a few times over. The problem is that you’d have to have 10 different people who all have good ideas and the drive to make a good shot at commercializing them, and all of them have to trust that all the others are good enough to swap risk with. That seems very hard to do.

It would make a lot more sense for some people with capital to specialize in this sort of funding.

Michael

29

John Emerson 07.29.06 at 9:46 pm

Michael: This was somewhat of a thought ewxperiment, but I was just thinking that if 10 people go into the restaurant business and one flourishes (a realistic proportion), to an extent it could be thought of as the survival of one gambler at the others’ expense.

Alternatively, perhaps the failed entrepreneurs could be regarded as having donated their labor and capital as a sacrificial offering to the God of entrepreneurship.

I haven’t seen a lot of discussion of the role of failed entrepreneurs in our society, but obviously it’s a big one, and generally a favorable one, which is not rewarded. So they can be regarded as self-sacrificing altruists whose altruism, while not entirely voluntary, is predictable.

30

a different chris 07.30.06 at 9:38 am

>Or are you now going to argue that the bottom decile looking for 1,000 calories of food per day is comparable to a bottom decile looking for a 2nd car and air conditioning?

Er, compare the bottom decile in, say, Germany to the bottom decile in the US, dude. Even with SS, without which it would get really ugly. But “of course” (no decent proofs ever given) we’d have even more growth.

And when you finally figure out where you’ve gone wrong please get back to us.

31

a different chris 07.30.06 at 9:44 am

Oh, I actually meant to reply to somebody on a serious sub-thread:

Being a wet-behind-the-ears engineer in the ’80s, I can tell you that in addition to all the good observations in #23, on this side of the Pacific the spectre of “Japan Inc” was used to scare the bejezus out of not just blue-collar workers but the salaried white-collar class.

Think you should have a bigger paycheck given company products?? “Japanese engineers are so much cheaper you better be happy with what you got”. Think you need a bit more time off? “Japanese engineers work until 8:00 at night, be happy you go home at 5:00. Uh, except for tonight this thing really needs to get done, call me at this resturaunt* if you have any questions”.

*Pre cell phone so they couldn’t pretend they weren’t just goofing off.

32

yet another chris 07.31.06 at 12:50 am

WRT the 10 business persons …
I think that you can convince yourself that luck does play a very significant role in success. Just ask yourself how many business persons you know who opened and ran a successful business. Then expanded to a second, third, …. site. How many had one or more of their additional sites fail?
I have a family friend who opened a restaurant and it did extremely well. So, he opened a second, then a third and forth. Then, one of them failed.
Even if you take the position that he over-extended himself, there had to be an element of chance/luck which “Picked” the restaurant that failed.

33

james 07.31.06 at 9:34 am

Rumor has it that the direct government funding of Airbus is being eliminated. The loss of this funding and the technical problems on the new plane are causing major issues with the bottom line.

Since neither the US nor the EU is adhering to their WTO obligations, this may be irrelevant. The US and EU have WTO treaties that specifically disallow the direct government funding that airbus is receiving. The EU has argued that Boeings military contracts amount to the same thing. The flaw with this reasoning is that all military contracts to any company would have to be disallowed.

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