The ExplanationScience.org community has started

Fellow skeptic and avid blogger Tracy Allison Altman from Evidence Soup and Ugly Research recently started a new initiative called Explanation Science. She asked me if I would like to join here initiative, which I naturally did. But, why did she start this initiative and what is it about? In this short article she answers a few of my questions. To be included on the distribution list of Explanation Science, send your name, location, and work email address to this address.They’ll keep you posted on new developments




So Tracy, why did you start this community?
I started ExplanationScience.org after years of observing (and obsessing over) how people develop, communicate, and apply evidence when they want to make change happen. I realized that although evidence matters a great deal, how we explain that evidence is equally important. So I decided to pioneer a new field: Explanation Science. Explaining is one of the most important things people do, but it hasn't received specific management attention or R&D focus. 'Explaining' can happen anywhere, and can be done by anyone: When we are problem-solving, debating/arguing, teaching, discussing results with investors or stakeholders, announcing research findings, selling products, etc.

This new membership organization is dedicated to the 'science of explaining'. It's a place for people who want to know what works (and what doesn't): To improve the process of explaining, whether it's finding innovative ways to develop valid explanatory information, or finding better ways to present a persuasive explanation.

For several years, I've been an outspoken advocate for processes and technologies that enable evidence-based management. I see www.ExplanationScience.org as complementary to initiatives supporting "evidence-based _____". If we can help people gather better explanatory information, and help them provide better explanations, then we can help them drive wider adoption of evidence-based management methodologies.

What is the aims and/or goals of the community?
We want to advance the idea that explaining is a specific type of activity that's crucial to success - and that it can be purposefully examined and improved upon. We want to build an active online community, and also sponsor face-to-face events. We're planning a kick-off event in Denver, Colorado during Q1 of 2010, and a conference in northern California later next year.

We want to give people a place to put their heads together: To discuss methodologies for gathering explanatory evidence, to exchange case studies on presentation strategies, to evaluate technologies, and to publish findings.

Our vision statement says "Explaining is one of the most important things people do, so we're giving it the attention it deserves."

Who participates in the community?
We welcome people from all walks of life who want to do a better job of explaining, and better understand what belongs in a ‘good’ explanation. People who are asking questions like:

- What information do we need to explain customer buying behavior?
- What techniques are best for explaining a particular health outcome or environmental impact?
- Which technologies are best for presenting explanations, or searching for them?

Our individual members are people interested in the 'science of explaining': Such as technologists, analytics experts, business professionals, scientists, educators, policymakers, analysts, or marketers. We'll also have institutional/corporate members, to serve two purposes: To help fund our group's activities, and to introduce the 'science of explaining' to people inside those member organizations.

Why is it interesting for potential clients?
We offer an opportunity to contribute to the development of a new field: The 'science of explaining'. People with fresh ideas can make a real difference by joining our group. We're providing a place to demonstrate expertise and share experiences on an important topic. We'll provide numerous ways to participate: Leading (or contributing to) online conversations and organized debates. Publishing applied research. Speaking at conferences. Contributing to a knowledge base. Showcasing technologies.

We're bringing together people who otherwise wouldn't be connected: People from different focus areas, industries, and geographies who share a common interest. Our online community, publications, and technology showcase will appear at www.ExplanationScience.org

Thank you Tracy, talk to you later.

Jeffrey Pfeffer on the state of affairs of evidence based management

Last week I received mail from Stanford. Jeffrey Pfeffer had returned after some extensive traveling and found the time to answer my four key questions. Here you can read his take on the current state of affairs of evidence based management. I'm always grateful if people take time out of in their busy schedules to help me out.








1. What do you view as the core idea and purpose of EBM? What do you think would be the benefit for organizations and society as a whole if management would be based more on evidence?

The core idea is simple and seemingly common sense to make decisions, to the extent possible, on the basis of the best facts and evidence available at the time, and to update ideas and decisions as new evidence becomes available. The purpose is to make sounder decisions by basing choices on the best theory and facts instead of on belief or ideology, unreliable retrospective consideration of experience, and fads and fashion. The benefits could be profound, as at least in the United States, in domains ranging from criminology to education to business management, many unsound decisions are made wasting resources and affording poor outcomes.

2. What progress has the EBM movement currently been making and is there evidence of evidence based management getting a foothold in organizations?

I think progress has been halting and even in medicine, there is evidence of much backsliding. For instance, when data showed that radiological screening for breast cancer should be postponed until age 50, there was an outcry and there seems to be no will to implement these findings, even though they are based on a lot of science. In management, senior managers seem to trust consultants, their own judgement, and casual benchmarking much more than they do the facts.

3. What future do you envision for EBM in (research and practice)?

In research, we need in management the same sorts of efforts that have occurred in other fields--summarizing the state of knowledge (and updating such summaries) so they can be used by practitioners. We also need more research on the barriers to implementing EBM practices and how to overcome such barriers. In practice, we need collectives and associations that push EBM forward, much as there have been in other fields.

Thank you very much for your time and efforts.

Grinded nails and bikes in your cereal

Last week, the Chair of the UK Government’s Advisory Council on the Misuse of Drugs – Professor David Nutt – was forced to resign. The Council was set up some time ago as an independent body to advise the UK Government on its drugs policy by providing evidence about the harmful effects of drug use. In particular, a drug classification system has been in use which is intended to reflect the level of harm of different drugs. Some years ago the UK Government ignored the advice of this panel and moved the classification of cannabis into a higher harm category to “send a signal” to users. Of course people at the time asked if there was evidence that doing this did deter users or not. I don’t think anyone knows and in fact some argue it might make it more attractive.

David Nutt had in the past criticised that decision and this week questioned the fact that alcohol and tobacco were not included in this classification system and suggested they were worse in terms of their harm to individuals and society than ecstasy, LSD or cannabis. He also suggested a new classification system. This seemed to be too much for the Government and they saw it has his attempt to change policy rather than just offer evidence-based advice and sacked him.

Here in the Netherlands we have a consumer program called 'De Keuringsdienst van Waarde', the title is a paraphrase on what in the UK is called the Food Standards Agency. The literal translation would be 'The value agency'. Four research journalist investigate every episode a specific type of food. E.g. orange juice, peas, onions, tea, etc. Two weeks ago, they had a topic on Kellogs Special K, with added iron. Ironically, the voice over said that the stuff of grinded nails and bikes is added to the cereal. They asked a food professor from Wageningen University, a family doctor and a chemist at Corus (the iron ore processing factory). None of them believed actual iron was added to the cereal. It must like iron in spinach, like Popeye.....or so they thought.

The journalists conducted tests (with metal detectors and magnets) and it turned out that the cereal indeed has magnetic properties. Then the fun really started. They added water to the cereal and put it in a blender. Next they put a magnet in a plastic bag and surprise, surprise, they found small iron particles. To the amazement of everybody, including the food professor, the family doctor and the chemist at Corus. Strangely, Kellogs did not want to answer questions on camera. The production process of cereal is proprietary information.....

Home movie to extract iron from your cereal

Time for serious research journalism. Why is metallic iron added to cereal? Is this good for public health and more important is this legal? All our Dutch food agencies (i.e. the government) point toward each other and then point to the EFSA (European Food and Safety Authority). (Note. Nobody checks for evidence). The EFSA doesn't know anything about approving nor stating that iron should be added to food, let alone metallic iron. In the final shot they are talking to the Dutch Food Authority who say, well if this is true, the product will be banned!

That was two weeks ago. A media storm broke out. Kellogs bought advertising space the next day, claiming that the program misrepresented the whole process of adding iron to food and actually blamed the journalists for bad journalism and slander.The voice over tells us that they were completely wrong with their metaphor two weeks ago about grinded nails and bikes, the should have said grinded cars... Kellogs has an iron supplier in Denmark who also supplies iron ore and powder to the car industry (a script writer could not come up with this...). All of course according to the highest standards....The food professor was on the receiving end of critique by his peers and was buried with reports and research. Only to find out that all the reports contradict each other! The poor man was intimidated and didn't want to participate in the program anymore. But, he had a collegue who would. This man clarified that adding iron to food stems from the USA, where it is mandatory by law since the second world war. The body can only absorp 9% (max.) of this type of added iron in an acid (the stomach) environment. But Kellogs claims it is needed because 40-60% of the men, women and children receive too little iron in their daily diet. It's good for you. They do it in the interest of the public and the claim their way is approved and our Dutch Food agency takes the side of Kellogs.... (so much for consumer trust in the authorities...).

It turns out that predecessors of the ESFA scientists (20 years ago) were highly doubtful of the effects of iron as food supplement. The never approved it. So, the health claim of Kellogs is false. And, in Denmark the practice of adding iron to food is forbidden by law, because people get sick and die as a result of to much iron in their food (hemochromatosis, type 2). Kellogs has a similar product (Special K) in Denmark, without the added iron. The cereal boxes look very much alike. We learn that Danish people are the only ones who think for themselves.... (sadly). The lady from the Danish consumers union states that supplements are abnormal and points out the obesity epidemic in Europe (and the USA). This episode ends with a chat at the dining table at the Dutch consumers union. They are appalled about the findings and are planning on launching a campaign against food supplements. The food professors announced new research. What is the scientific evidence of benefits from metallic iron as food supplement? One can only wonder what our politician will do. At least they can't fire the journalists.

To make a long story short, managers are certainly not the only ones in the dark about evidence based decision making. The poster boys for circumstantial decision making turn out to be the agencies who are there to protect the general population from health hazards.

Denise Rousseau's take on Evidence Based Management

A few weeks ago, I got in touch with Denise Rousseau, professor of Organizational Behaviour the Carnegie Mellon University and one of the figureheads of the emerging 'Evidence Based Management' school of thought. She was visiting colleagues in Ireland, but took the time to answer a few of my questions. Jeffrey Pfeffer also replied, but was swamped in his work and preparing to leave the country for an extensive trip abroad. He'll probably give his point of view later. Bob Sutton hasn't been in touch yet. Today I got in touch with another leading thinker in this field. His name is Rob Briner, professor of Organizational Psychology from Birkbeck College, University of London, who already collaborates with Denise on the Evidence Based Management Collaborative. But, back to Denise.

1. What do you view as the core idea and purpose of EBM?
EBMgt in my opinion is family of approaches to improving the quality of managerial decisions and organizational practices by combining in a more systematic fashion
1) relevant findings from mgt/social science research,
2) business facts and metrics with
3) more skillful individual judgments.

2. What do you think would be the benefit(s) for organizations and society as a whole if management would be based more on evidence?
In both public policy and organizational decisions, we possess so much more relevant knowledge and information than is actually ever used. Improving the uptake of scientific evidence with better understanding of how people organize and make decisions  translates into better quality decisions and easier implementation.

3. What progress has the EBM movement currently been making?
I would say that there are three legs in the EBMgt tripod and on 2 of the 3 we see some progress, though much work remains to be done. The two legs were we see developments are;

• education where there is greater attention in teaching managers and other practitioners who can benefit from managerial knowledge (e.g., nurses, social workers, doctors, public policy professionals, etc.) and
• scholarship/research, where somewhat more attention is being paid to identifying what we can confidently know from mgt research, as opposed to always focusing on brand new ideas or new theories at the expense of assessing progress to date.  

You can probably gather that I believe the weakest link (but really all need work!) is managerial USE of quality business facts in making decisions let alone any use of or reliance on social science findings in the decisions being made.

Is there evidence of evidence based management getting a foothold in organizations? I am doubtful. Hit or miss, and it may be that as in medicine, it takes a generation before a new evidence-informed practice takes hold.

4. What future do you envision for EBM in (research and practice)?
This is the project of a community, perhaps several communities, and a generation, I think we are seeing ENERGY in several communities to move EBMgt forward. I am hopeful and patient!

Thank you very much.

Toward evidence based change management

Change management is very much alive today! Despite the lack of success and reports about high percentages of failure (the infamous 70%), popularity is on the rise. This is the opening statement from the article "Op weg naar evidence based change management" by Eric Barends and Steven ten Have which was published in the Holland Management Review. These Dutch researchers disagree with the reported percentages of failure and have refuted this in another article. They are however optimistic about systematic research (in the spirit of Peter Drucker) in order to establish What, Why and When works and what doesn't regarding change management. Their article provides an overview of the developments in change management and investigates the practical barriers for evidence based change management. They make an analogy with psychology, where there was consensus amongst clinical psychologist that 'debriefing' after shocking events prevents psycho trauma. Only, until recently it was discovered that 'debriefings' enhances the chance of a psycho trauma. Without any doubt there are similar misperceptions in change management and we should work extra hard to reach the next level toward evidence based change management and root these misperceptions out.

The term '' change management' generates 252.000.000 hit in 0.32 seconds on Google (26 october, 2009). No doubt very popular, but heavily polluted and debased by IT management. When you try it in Google Scholar it yields 3.600.000 hit in 0,16 seconds. Still an impressive number.

The authors concur with Tichy who was very critical about the efforts toward change management when he observed 20 years ago: Billions of dollars have been spent in the last two decades on management and organizational development activities purposely designed to change organisations. These include programs to introduce management by objectives, organizational development programs, the managerial grid. leadership training, strategic planning models, and, more recently quality circles. Virtually none of these efforts has any systematic monitoring or evaluation associated with it. This leads to an unfortunate state of affairs where waxing and waning of organizational improvement remedies are associated with limited understanding about what works and what does not and why"

But does that imply that change management is bankrupt? Well, if we limit ourselves for the next rise and fall of the latests management hype, the answer is yes.

Developement in change management
The analogy with clinical psychology is made. This discipline matured in the last decades (as opposed to change management). In the 1960, there was a struggle between two therapy schools. This is known in literature as "Theory E" and "Theory O". This struggle lead to an enormous improvement in research methods. Therapy effects could be compared and supported by empirical evidence. The fase of "free theorizing" was closed and succeeded by scientific (effect) research. In the beginning there where many methodological problems, but over the years they where sorted out and this made the profession a lot less arbitrary.

The next step: scientific (effect) research
Authors Jeffrey Pfeffer and Bob Sutton claim in their book Hard facts, Half truths and Total Nonsense the call for scientific evidence of postulated theory and models. This call is inspired by  the "evidence based" school of thought in medicine. Managers and educators disregard the enormous amount of behavioural science research which is evidence based. The lack of a shared body of knowledge (in the spirit of Peter Drucker) prevents the development of "peer pressure" focussed on the use of "evidence". Evidence based medicine should guide the way and inspire.

Practical barriers for evidence based change management
1. Management is no academic discipline: Bennis and O'Toole state: "The scientific model, as we call it, is predicated on the faulty assumption that business is an academic discipline like chemistry and geology. In fact, business is a profession, akin to medicine and the law, and business school are professional schools - or should be." 
2. Research of the management practise: For methodological and practical reasons researchers can not afford to allow solely homogeneous patients. Research would be invalidated for the heterogeneous clinical practise.
3. Management is not strictly defined: Christensen and Sundahl argue: "Many researchers and writers about management have been eager to offer theories - in the form "if you do this, this will result"- that they haven't taken the care to build their predictions of cause-and-effect on a robust classification scheme".In other words, management is to broad to do serious research.

How to proceed from here?
Experience from medicine and clinical psychology learn us that great harm can come from personal experiences alone. Just recall that until 30 years ago, stress was thought to induce stomach ulcers. To the great amazement of the medical community a bacteria (Helicobacter pylori) turned out to be the root cause and it is easily treatable with antibiotics. The same goes for "benefits" of the aforementioned 'debriefings' by clinical psychologists. Without any doubt there are similar misperceptions in change management and we should work extra hard to reach the next level toward evidence based change management and root these misperceptions out.

Note: Non Dutch speakers are advised to use Google translate to upload the file and translate Dutch to English to read the full article.

References:

• Managing strategic change: Technical, political and cultural dynamics, N. Tichy, New York, Wiley&Sons, 1983, p. 363
• Hard facts, Half truths and Total Nonsense, J. Pfeffer, B. Sutton, Harvard Business Press, 2006
  
• How Business Schools Lost Their Way', W. Bennis, J. O'Toole, Harvard Business Review, vol. 83, No. 5 (May), 2005, p. 96-104
  
• Op weg naar evidence based change management, E. Barends, S. ten Have, Amstelveen, Holland Management Review, nr. 120. 2008, p. 15-21.
  

Three questions about evidence based management

The last few days, I have had pleasant email exchanges with Dennis Tourish (University of Kent) and Mark Learmonth (University of Nottingham). Dennis will join in the EBM debate later and Mark still defends his arguments against the emerging evidence based management movement. He also sent me a few articles. Since he published his short paper in ORGANIZATION, he has become a little milder. I've invited him to respond on the blog and share his current views with the rest of the readers.

After reading several publications, there are actually three questions which fascinate me about the evidence based management movement. Please share your thoughts in the comments or write your own posting.

1. What is the core idea and purpose of EBM? What would be the benefit for organizations and society as a whole if management would be based more on evidence?
2. What progress has the EBM movement currently been making? Is there evidence of evidence based management getting a foothold in organizations?
3. What is future for EBM in (research and practice)?

Readers who have written articles on evidence based management (published in academic journals or still in the process or otherwise), please share them with me. I'd like to make a repository with interesting articles on evidence based management.

Food for thought: Mark Learmonth's view on evidence based management

In my exploratory search for the state of the art of the evidence based management movement, I stumbled on this short paper by dr. Mark Learmonth, Associate Professor in Organization Theory at the University of Nottingham. This is a must read for all the evidence based management enthusiasts. Maybe not always what you want to hear or read, but definitely food for thought on the freedom of conducting research and the politics which are involved in securing research grants and the pursuit of a academic career. Although, criticizing the EBM proponents by challenging their intellectual credibility does not make his case stronger. In the abstract of his contribution which is called Evidence-Based Management: A Backlash Against Pluralism in Organizational Studies?, he states:

The rise of ‘evidence-based management’ (EBM) is read as the latest form of resistance to pluralism—one that might prove particularly hard to refuse given the popularity of many other forms of evidence-based practices. So I explore the prospects for EBM within organization studies and some of its implications for those who value the continuation of pluralistic forms of analysis in organizational research. 

In 1993 Jeffrey Pfeffer bemoaned the proliferation of theoretical perspectives in the field of organizational studies. He advocates the paradigmatic unity which was enforced by a group of scholars who imposed their views in the field of economics. This was a good thing, because it enabled coherent research and more advancements in the field of economics. Organization studies could benefit in the same way. His appeal fell on deaf ears and it seemed that the pluralists of methodology in social sciene had won the battle. Learmonth is still not convinced. He worries that the evidence based management movement is a political project and that the emergence of the evidence based practice will lead to methodological fundamentalism. In social science, he says, evidence is never just there for the researcher to find it, it is always necessary to construct the evidence in some way, a process that is inherently ideological and always contestable.

Update: I reread the short paper and distilled the main arguments made by Mark.

• Evidence based management limits (what counts as) legitimate research methodologies (leads to fundamentalism).
  
• What works tends to assume elite definitions of effectiveness.
• Evidence based management has a top management bias.
• Evidence is not objective or neutral.This leads to philosophical discussions on science.
• Evidence based management is a political project.
• Evidence based management threatens funding for independent research.

I wonder if he still feels so strongly about the points he's made. Maybe he'll respond.

Is the evidence based management movement dead?

When you go to see a doctor, you would like him or her to make medical decisions based on scientific evidence and research. Not stick the first needle or pill in you, because he or she heard rumours that it just might work. However, in management we are still in the middle ages of science, where the alchemists still try to make gold from lead. And by alchemists I mean all types of managers (managers, consultants, coaches, interim-managers, project managers, etc.). One of the reasons why managers still make decisions based on anecdotal evidence, gut feeling or a whim is the fact that management is not a profession. Well, perhaps it is, but we lack a body of knowledge and skills. Everybody with decent qualifications can become a manager in contrast with nurses, judges or engineers. Management is still treated as a 'skill' and if you have a better story than the next guy, you just found yourself a new career.

Around the year 2000, the evidence based management movement emerged. It is a movement to explicitly use the current, best evidence in management decision making. Its roots are in evidence based medicine, a quality movement to apply the scientific method to medical practice.

Evidence-based management (EBMgt) entails managerial decisions and organizational practices informed by the best available scientific evidence. Like its counterparts in medicine (e.g., Sackett, et al., 2000) and education (e.g., Thomas & Pring, 2004), the judgments EBMgt entails also consider the circumstances and ethical concerns managerial decisions involve. In contrast to medicine and education, however, EBMgt today is only hypothetical. Contemporary managers and management educators make limited use of the vast behavioral science evidence base relevant to effective management practice (Walshe & Rundall, 1999; Rousseau, 2005, 2006; Pfeffer & Sutton, 2001). (Source: en.wikipedia.org)

Last month the annual Academy of Management meeting was hosted in Chicago and a couple of my colleagues who work for Universities went to meet people and take in the latest developments on Organisational and Management Science. The Evidence Based Management movement is still there, but progress is really slow. Most developments are exchanged in closed communities and you really have to make an effort to dig up new information and stay in the loop of recent developments. I'm now in the process of preparing an interview (together with my friend Coert Visser) with the four figureheads of the Evidence Based Management movement. These are Denise M. Rousseau, Tracy Altman, Jeffrey Pfeffer and Bob Sutton. Interviews take time, but I'm confident we'll get some answers. Wait and see what they have to say about the future of Evidence Based Management.

Interview with Michael Shermer

On skepticism and evidence based management

© 2009 Richard Puyt

Dr. Michael Shermer is an adjunct professor in economics at Claremont Graduate University, founder of the Skeptics Society, chief editor of Skeptic Magazine and (co)author of many books and articles that take on everything from the existence of Bigfoot to Intelligent Design and why people believe in such phenomena. Recent publications include The Mind of The Market. He is also contributing editor and monthly columnist for Scientific American, and is the host of the Skeptics Distinguished Lecture Series at Caltech. Last summer I've interviewed him for Managementsite.com about skepticism in general and the emergence of evidence based management in particular.

The Skeptics Society is inspired by the philosophies of great thinkers, like the 16th Century Dutch philosopher and lens grinder Baruch de Spinoza, who tried to understand human nature throughout his life and the 20th Century theoretical physicist Albert Einstein, who said all our science is child play and primitive compared to reality, but it is the most precious thing we have. Skepticism is a method, not a position. Skeptics are not cynical.

Richard: On the English Wikipedia entry about you, there is the following statement: I became a skeptic on Saturday, August 6th, 1983, on the long climbing road to Loveland Pass, Colorado….I got the impression you had an epiphany. Like you denounced everything you believed in previously and chose the scientific method. Like a conversion to science. What happened on the mountain?

Michael: I was involved in extreme biking and used legal performance enhancement techniques. No drugs, I might add. Still feeling no improvements after taking herbs, vitamins, minerals, and potions of all kinds, I actually wondered if all the claims which were made on the bottles really could stand scientific scrutiny. That’s the moment I decided to go back to my scientific roots. At the time, I held a Masters in Experimental Psychology and went back to Claremont Graduate University to do my Ph.D. That’s what I actually wanted to do all my life. Become a college professor and improve the world a little by teaching.

Richard: On the internet, we can read, see and hear many of your articles, debates and lectures. The ones which stand out for us are: Why people believe weird things and the baloney detection kit. Becoming a skeptic is one thing, founding an organization and a magazine is something else. What do you hope to achieve by promoting skeptical thinking? How will things become better if more people assume a skeptical attitude?

Michael: If things sound too good to be true, they probably are (and never abandon lying as a probable explanation). Never assume. Challenge everything. Skeptical thinking is not a religion or a way of life. It’s a way of thinking, a method. It helps you to test assertions and claims. You can detect lies and half truths. When we say we are “skeptical,” we mean that we must see compelling evidence before we believe. It prevents us from believing in illusions and spares us a lot of sorrow. The Skeptics Society organization started bottom up. We are the debunk squad of pseudo, voodoo, junk and bad science. Right from the start, it received quite a lot of attention and before you know it we were on the radio and asked to appear in tv-shows like Larry King Live and Oprah.

All over the world there are skeptics organizations, like for CSICOP/CSI, Skeptical Investigations, The James Randi Educational Foundation and I even believe there’s a chapter in the Netherlands. Here in the United States we have our hands full with school boards wanting to teach intelligent design or creationism instead of Darwinian evolution. People outside the States, like you, always ask us why we spend so much time on these guys. It is a necessity. We are caught in the middle of a cultural war.

Just as Richard Dawkins is raising our consciousness about the power of evolution to explain not only life, but religion and morality as well and that it is okay to be an atheist… I’m going to do something like that in the next book project (Mind of the Market), which is to raise the consciousness about the power of evolution to explain economics, evolutionary ethics and how markets can be moral, complexity theory to explain how markets rise, and that it is okay to be a libertarian (fiscally conservative, socially liberal). Libertarianism is based on the principle that people are free to think, believe, and act as they choose as long as they do not infringe the equal freedom of others. The part of infringement is where the rubber meets the road…
(YouTube: The Amazing Meeting 5: Michael Shermer, Evolutionary economics, part 1

Richard: On the 12th of February 2009 it was exactly 200 years ago that Charles Darwin was born. This year we celebrate his live and work. The school of evolutionary economics draws from the work of Charles Darwin on evolutionary biology. In your book Mind the Market you advocate this school. What fascinates you about evolutionary economics and how does it translate to our everyday life?

Michael: Since I was a teenager, I’ve been a libertarian. I noticed that there are not so many of us and that most people find us a bit strange. Most people have a hard time with the idea of so much freedom in the market place. Now, why is that? When I started applying evolutionary thinking to the process, thinking about folk intuitive notions of things and why people get so many areas of science wrong intuitively, it began to make sense to me. With folk astronomy we have an intuitive notion that the world is flat, celestial bodies revolve around the earth. That’s the way it feels. The planets are wondering gods that determine our future.

In folk economics, we have an intuitive notion that excessive wealth is wrong. Economic systems must be designed from the top down. We misunderstand and mistrust ‘the invisible hand” of the market place (note: Charles Darwin also read the work of Adam Smith). The reason why folk science so often gets it wrong is that we evolved in an environment radically different from the one in which we live. We still have a sweet tooth and biological inclination to eat fat, because food was always scarce. That’s why we have an obesity epidemic right now. Our senses are geared for perceiving objects of middling size, between say ants and mountains. Not bacteria, molecules and atoms on one side of the scale and stars and galaxies on the other end. We live to short to witness evolution, continental drift or long-term environmental changes. That’s why we still have an inclination to want products now, versus products later at a considerable discount. It is human nature.

According to the Austrian school of economics, if you “create” too much money, the indicators in the market go haywire. That’s why we probably should go back to the gold standard. The value of money needs to be backed up. This should prevent us from creating money from thin air. It also makes you wonder if the spectacular economical growth over the last 25 years was maybe based on nothing. Normal growth rates are between 2 to 3% per year, instead of 20%. Makes you wonder.

Richard: Nassim Nicolas Taleb is a literary essayist, epistemologist, researcher, and former practitioner of mathematical finance and calls himself skeptical empiricist. He wrote Fooled by randomness and The Black Swan. Since the crisis in 2008 he is an activist for a Black Swan robust society. On the 7th of April 2009 he wrote an article in the Financial Times, where he states; We’ll see an economic life closer to our biological environment: smaller companies, richer ecology, no leverage. A world in which entrepreneurs, not bankers, take the risks and companies are born and die every day without making the news. Sounds like he also advocates evolutionary economics. Taleb's contents that statisticians can be pseudo scientists when it comes to financial risks and risks of blowups, masking their incompetence with complicated equations. How does skeptical thinking prevent us from becoming epistemological arrogant?

Michael: Well, I actually know Nassim quite well. He’s even a bigger skeptic than me. A lot of people think he is arrogant, but I disagree. In his book The Black Swan, he made some valid points. For instance, you have to take all data into account. Not only count the successes, but also the failures. The same problems arise in science magazines. Reports about failures are equally important, but are much harder to get accepted by the editorial boards of scientific magazines. If the chance is 50/50, then the payoff has to be twice as high as the risk. Loss hurts us much harder. This comes all down to biology. As for statistics, how can you predict the 100 year flood, if your data set only covers the last 10 years? Be humble and very aware of the limitations of your knowledge. Risk calculations and probabilities is not the same as fact finding. There is always bounded rationality in decision making. Nassim predicted the meltdown of the economy and the black swan emerged. That’s why he has so much fun in challenging people who make claims they can’t backup. He’s very popular right now.

The only remedy I see to avert epistemological arrogance is humility. Be humble before the market. But when the market goes up again, we’ll probably forget all the previous warnings and start over again. The cycle will repeat itself. The market now hit rock bottom. If you buy right now, you’ll make a huge profit. And that will probably happen on occasion. Then we’re back on anecdotal evidence and confirmation bias. We tend to have a short term memory. It’s human nature.

Richard: In Managers Not MBAs, 2004, Professor Henry Mintzberg at McGill University challenges the validity of the perennially popular MBA program: a program that top-tier companies continue to rely on as essential to the creation of successful corporate leaders. As one of the great iconoclasts of management theory, Mintzberg emphasizes the need to reexamine and drastically change our traditional form of management education. As Mintzberg boldly asserts: MBAs do not managers make. What do you think about this assertion?

Michael: I think he’s right. Maybe I can tell you an analogy. By contract, my book publisher in New York can choose the images and the titles of my books. I can only “approve”. If I don’t agree they can still go ahead. I asked them who chooses the pictures for the books. Well, just the three of us, they replied. I proposed to ask my followers on the internet (over 50.000 skeptic readers) to give their opinion on the best book cover, by putting up 3 pictures of covers on my blog, but they opposed fiercely. I would be in breach of contract and this is not the way covers are picked out in publishing. They think that their way is the best way and are not inclined to change. I could test things for them within an hour. Heck, they can test it for themselves a local Barnes and Nobles, but they simply refuse. They have never tested their theory and don’t see any benefit in changing. I think they should. They’ll probably end up selling more books.

Richard: The emerging evidence based management movement is introduced by Jeffrey Pfeffer and Robert Sutton in 2006. It is based on the same sort of thinking and discipline that has improved the practice of medicine to work on the management of medical organizations so that the management can be held to the same standards as the doctors in terms of the rigor of thought and analysis. What are your views on the emergence of this movement?

Michael: Management is a broad spectrum. But, I like the principle. Where I think it might trip up is anecdotal evidence to support claims and confirmation bias. That’s why I like the wiki’s. You have constant interaction and improvements. This probably doesn’t work in all fields off course. For instance, in astrophysics, I doubt if anybody outside of the professional field could make a useful contribution, let alone understand the matter. But, it is not outside of the realm of possibilities. Open and peer reviewed theories are the best, because they get constantly challenged. On my site, I also invite people to help improve Wikipedia. Be skeptical! It can only improve (scientific) theory.

Richard: In science there is much debate about the level of evidence. The dominant way of conducting science is the way physicists and mathematicians gather scientific proof. Big samples (n>1000), complex formulas, impressive charts, etc. Social scientists argue that this is not the preferred way to conduct research. Especially when researching management. What is in your view the preferred way to conduct research in science from a skeptical point of view?

Michael: There are two types of scientific research: experimental and comparative. In the social sciences, especially in economics and business, we cannot run controlled experiments and manipulate variables like we can in laboratory experiments. Instead, we have to wait and see what happens in natural experiments that are run by people trying different techniques. For example, communism was a 75 year experiment on collectivization of the means of production, and we see how well that worked compared to capitalistic systems during the same period of time. We can compare, say, South Korea to North Korea, the former employs capitalism while the latter uses communism. The average annual income per person in South Korea is several tens of thousands of dollars. The average annual income per person in North Korea is less than a thousand dollars. That is a natural experiment that we can collect data from and draw our conclusions.

Richard: Thank you very much for your time and this interview.

References

• Committee for skeptical Inquiry: http://www.csicop.org/
• Homepage van Michael Shermer: http://www.michaelshermer.com/
• Homepage van Nicolas Nassim Taleb: http://www.fooledbyrandomness.com/
• Minzberg, H, © 2004, Managers, not MBA’s: A Hard Look At The Soft Practice Of Managing And Management Development, Pearson Education Limited, ISBN 0273663240
• Pfeffer, J. & Sutton R, © 2006, Hard Facts, Half-Truths, and Total Nonsense: Profiting from Evidence-Based Management, Harvard Business School Press, ISBN 1591398622
• Skeptical Investigations: http://www.skepticalinvestigations.org/aboutsi/index.htm
• Scientific American: http://www.scientificamerican.com/
• Shermer, M., © 2007, The mind of the market: Compassionate Apes, Competitive Humans, and Other Tales from Evolutionary Economics, Times Books, ISBN 0805078320
• Stichting Skepsis: http://www.skepsis.nl/
• Taleb, N.N., © 2007, Fooled by randomness: The Hidden Role Of Chance In Life And In The Markets, Penguin books Ltd, ISBN 0141031484
• Taleb, N.N., © 2008, The Black Swan: Impact of the highly improbable, Penguin books Ltd, ISBN 0141034599
• Taleb, N.N., © 2009, 10 principles for a black swan proof world, The Financial Times, http://www.ft.com/cms/s/0/5d5aa24e-23a4-11de-996a-00144feabdc0.html
• The Austrian school of Economics: http://en.wikipedia.org/wiki/Austrian_School
• The James Randi Educational Foundation: www.randi.org
• The Skeptics society: http://www.skeptic.com/about_us/
• Wikipedia: http://en.wikipedia.org
• YouTube: the Amazing Meeting 5: http://www.youtube.com/watch?v=-KVJZJ4MSic

Contact:
Michael Shermer can be reached by email

Acknowledgement:
Thanks to Coert Visser (www.solutionfocusedchange.com) for helping with the preparation of this interview.

About the author:
Richard Puyt is a management consultant (CMC), editor and part time lecturer. More information: Facebook / Dutch LinkedIn Innovatief Organiseren Community / Dutch blog Innovatief Organiseren / Puyt Consultancy.