Risk, bias and planning

Risk, bias and planning

A couple of years ago, I wrote a precis of the McKinsey Quarterly article, “Distortions and deceptions in strategic decisions”. They started with a review of the way human bias can adversely impact strategic investment decisions illustrating it with a story about a mega-merger which failed. They conclude the article with,

Companies can’t afford to ignore the human factor in the making of strategic decisions. They can greatly improve their chances of making good ones by becoming more aware of the way cognitive biases can mislead them, by reviewing their decision-making processes, and by establishing a culture of constructive debate.

The first half of the article examines the propensity to optimism vs. perceptions of loss aversion and argue that portfolio management is a better way to evaluate the risk as lossess can be compensated by other success. I believe though that British management and particularly public sector management is very risk adverse; there is a higher fear of getting things wrong than getting things right although how we end up with Universal Credit, the Boris “vanity lard bus”, his water cannons and his other “erections”, I don’t know.

What made me remember the article was it’s listing of what they call tools to isolate any human bias to me most importantly

Another technique is to request that managers show more of their cards: some companies, for instance, demand that investment recommendations include alternatives, or “next-best” ideas.

I wonder how many of these lessons need to be applied to local authority planning decisions.  Check below/overleaf for more …

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Another look at free software

I read this, “‘Software is meant to be free …” at Hackernoon and found it disappointingly lightweight. It talks of Stallman, thus the four freedoms and the GNU project and mentions Eric Raymond in passing as the man who coined the phrase Open Source rather than the author of the Cathedral & the Bazaar and Homesteading the Noosphere. He doesn’t mention Stallman’s attack on the concept/phrase of Open Source since he considered it a diminishing of the four freedoms. It’s weak on the evolution of copyleft; it doesn’t mention for instance, Laurence Lessig and the Creative Commons. Clary also fails to mention Torvalds, the man most associated with Linux, the prime example of Open Source Software, although the EU Commission discovered that the largest contributor to the open source code base was Sun Microsystems.

It is particularly weak in its view of how and why the proprietary software behemoths adopted Open Source. They did so primarily in areas where they were weak in market share and profitability and where their competitors were the inverse. IBM’s massive investment in Linux, much of it through its OEM agreement with Red Hat was designed to kill Sun MIcrosystem’s Solaris; it is arguable that they succeeded, although both I and Eric Raymond think it’s more complex than that, as provoked by him, I argue here.

Our understanding of the economics and sociology has moved on since then. Anne Barron in her 2013 paper, Free Software Production as Critical Social Practice which I should really re-read looks at both and earlier in the previous decade Simon Phipps articulated new sources of value and new contexts for open source software, both how free software created scarce markets, and that open source governance models equally created and constrained the value of its free product. I was lucky to be able to present his theories once or twice and I reported on one such presentation on this blog 10 years ago.

These papers and theories are somewhat aged certainly when one considers the speed of technology development but its possible that even older theories such as Marx’s Fragment on the Machine and more recent developments in conceiving of immaterial labour, and the enigma of software’s role in the means of production are all part of the questions that need to be answered to understand the economic role and governance of software.

It’s not that software wants to be free … it’s just looking like no matter what theories of price you adhere to, free is the right price.

ooOOOoo

See also Free, the right price for software and maybe Monopoly and prices, both by me on this blog, written in 2009 exploring the micro/meso-economic classical welfare theories as to why software should be free. …

Reinforcing Monopoly

Hereby are two stories about how software acts as a barrier to entry to a market and reinforces the monopoly power of its provider.

The first is shown by the fact that industrial content are getting cold feet over the EU copyright directive as the service providers have switched to supporting Article 13 since they already have the so-called “upload filters”. Only the big boys will be able to remain in the game of hosting user authored content. As predicted, the new regulations will inhibit both startups and SMEs.

The second story is closer to home. The UK have decided to mandate age verification functionality for porn sites. Who do you think is going to build that? Alec Muffet and the Open Rights Group have been tracking this and even if you think it’s a good idea, they way it’s being done is disastrous. The BBFC is the regulator and this is a massive piece of scope creep, it looks like they will licence a third party to act as the software provider and again the favourites to win this business is an interested party. Alec’s latest blog post is on Medium and is critical of the regulator’s stance and IT Security expertise and he previously wrote about the competitive dynamics and opportunities created by the new laws. Muffet is also concerned about the profiling use of such a database of porn users. It’s almost back to the days of the Roman Empire where monopolies were licensed. …

Brexit and Labour’s 2017 Manifesto II

In my article “Brexit and Labour’s 2017 manifesto“, and on my wiki article, “Stability & Growth Pact”, I talk about the reasons supporters of Labour’s 2017 manifesto might believe that they need to leave the EU to run fiscal deficits, nationalise critical businesses and offer state aid. I had come to the conclusion that our current terms of membership allowed the UK to pursue whatever macro-economic policies it chose and to be able to pursue its nationalisations. There would seem to be some questions on state aid and some people have raised the issue of the Railway Directive and its possible impact on the single market and nationalisation. A campaigning comrade of mine, from Southampton Itchen CLP has researched these issues and produced the following report, overleaf,  which he also published on Facebook wall.

He concludes, the notion that all EU activity is driven solely by Neo-Liberal ideology is in my opinion a mistaken assumption. In many instances there are additional rationales underpinning the EU rules that go beyond mere market obsession. The EU has pressed for more open networks in telecoms and energy but open access across national energy networks is critical for renewable energy production being made viable on a grand scale. Whereas in the water sector, where it is not feasible to create overlaying pan-European services, the EU has never shown any interest in legislating for open networks.

I would not go so far as to suggest the EU does not have an over optimistic view of the market system or tend to assumptions about private sector performance vs public sector that are not sustained by the economic models relied upon and it is possible to have a good discussion about Ricardo’s theory of comparative advantage.

On the other hand, free market supremacy is a pretty widespread assumption in the modern western world. The victory of the Neo-Liberal ideology has been to shift public perceptions to accept the ‘private good, pubic bad’ mantra as a gospel truth. That human beings in the EU broadly accept the same mantra is not really a surprise. The challenge to us as socialists is not just to reshape the UK economy to provide for greater equality and justice but to begin to reshape the underlying assumptions about human and market behaviour that underpin much of the capitalist economic system. …

Maths, Economics and Mark Blaug

I just read Modern Economics is Sick, on the Real World Economics Blog which uses a quote from Mark Blaug to substantiate its thesis,

“Mainstream economics has become increasingly irrelevant to the understanding of the real world. The main reason for this irrelevance is the failure of economists to match their deductive-axiomatic methods with their subject.”

Mark Blaug (1927-2011) did more than any other single person to establish the philosophy and methodology of economics a respected subfield within economics. His path-breaking The methodology of economics (1980) is still a landmark (and the first textbook on economic methodology yours truly ever read)

One day, I’ll have look at it. …

On protecting air quality

On protecting air quality

Do Lewisham Council have a view based on science about the impact of green space, or the change in the amount of green space on air quality. ( I am advised that the quality of the planting may/will also impact this calculation, as of course would distance from the green space.)

It would seem useful to knowand I can’t find anything useful that goes beyond sq. m. …

Dallio on Economics

I am tidying the flat of items I have kept for too long, and came across an unread copy of Ray Dallio’s “How the Economic Machine Works”. I had been pointed at it by a then work colleague who had asked me to comment.

I didn’t feel in the mood to read it, and know I don’t want to keep it and so I googled it to create a bookmark but came across this 30 minute video, which can of course be consumed at double speed.

Dallio constructs a macro-economic model based on productivity growth, and credit cycles.

I have problems with his ignoring of the impact of monopoly on prices which given his rigid adherence to demand pull inflation theories could be a problem because he requires that over pricing leads to a dropin demand which doesn’t necessarily occur in monopolistic markets. He treats savings as a purchase of assets i.e. as spending; I am not sure that’s right.

He makes no mention of the marginal propensity to spend/save i.e. ignores the fact that the poor spend more of any incremental income than the rich. There is a limited discussion of fiscal policy.

He argies that the real economy i.e. the economy in terms of goods and services ignoring prices, grows at the rate of macro productivity growth.

There is no mention of international trade in his model.

I am unclear what causes the turn round in his long term debt cycle i.e. why does it change from benign to catastrophe. (Is it just animal spirits reacting to inflation and/or the micro debt burden? Or maybe its banks getting cold feet about the creditworthiness of thier borrowers.)

He argues that when the long term credit cycle moves to bust there are only four things that policy makers can do in order to reduce the total debt burden, restore creditworthiness and start spending again,

  • Cut spending (Austerity)
  • Reduce debt (Defaults & Restructuring)
  • Redistribute wealth (from the wealthy)
  • and print money

He argues that the first three are deflationary i.e. will reinforce the recession but the final one does not. (I can’t see how taking money from the rich and giving it to the poor is deflationary because of the short term higher propensity to spend of those with lower incomes.) He argues that these policies need to be balanced and that changes in income/product must be greater than the change in the debt burden. This reminds me that he does not seem to discriminate between domestic and government debt.

He finishes with three personal lessons, the last of which I heartily agree,  don’t borrow too much, don’t charge too much, and keep yourself up to date i.e. improve your productivity. …

Sectoral Balance of Trade

As one does I am considering the international trade implications of copyrighted products? I wonder what the balance of trade state is, over the last five years for Standard Industrial Classification (SIC) groups J.58 broken down to 58.1 & 58.2, J.60, J.62, M.72, R.90? These are Publishing inc. computer games and other software, Programming and Broadcasting, Computer Programming and Consultancy, Scientific Research and Creative Arts and Entertainment?

It would also be good to see the balance of trade for the UK drug industry but it is no longer a single SIC and I am afraid that much as for the five SIC classes above, the real surplus/deficit will be hidden through inter-company transfers, i.e. the import is by one company that buys from a another foreign division of itself and the trade is a sterling internal market trade. …

Surveillance, ignorance and a chilling effect

The Guardian, not exactly disinterested, publishes a leader on regulating Apple and its competitors. I would argue, Apple is the example of the 5th Industrial Revolution monopoly and we need to learn how to regulate it and is competitors and it is a problem for the US also. The authors  completely miss the fact that there are new forms of oppression, that of surveillance, caused by the datenkraken.

We need new forms of protest and defence even though we’ve know about it forever. It’s for this reason that we established the rights of privacy and free speech as part of the universal declaration of rights.

This quote is important, it establishes commonalities with their predecessors,

All [ the datenkraken] use remarkably few workers to generate their enormous profits. All operate an internal class system, which concentrates power in very few hands. None have any unions worth speaking of. All rely on the unglamorous work being done far from California, usually by subcontractors. All shuffle their profits around the world in an endless game of “Find the lady” with national tax authorities – a factor that should not be overlooked when it comes to asking why they are so immensely profitable. If this is the model of the company of the future, it will have consequences we have not yet learned how to manage.

They finish with,

The downside of the oil-based economy is now obvious all around us. The symptoms of apparently uncontrollable climate change have become undeniable. Cities are choked with polluting traffic while the seas are choked with plastics made from oil. Whole countries have been devastated by oil riches. The digital revolution seems, so far, much more benign. But the loss of trust that social media both causes and exploits may one day be seen as another form of unforgivable pollution.

I think this is weak, the threat is surveillance, ignorance and a chilling effect. …