Wisdom applied to Number Crunching
Terrific TNR article referred to me by Todd Walker describes how the Obama team uses data and wonky policy techniques in a way that seems relevant for many of us in an increasingly number-rich, -doused, -drenched, -dictated world.
The article starts with a description of the influence of neo-classical refiner Richard Thaler:
Behaviorists like Thaler believed that the perfectly rational, utterly self-interested maximizers of economists’ imaginations had little in common with actual human beings, who frequently err when making simple calculations, who have trouble with self-control, who often act out of altruism or spite.
But what’s really interesting is how Thaler and his fellow behaviorists responded to this fairly critical insight. Though rational self-interest was the central tenet of neoclassical (i.e., modern) economics, they didn’t take a wrecking ball to the field and replace it with some equally sweeping theory of human behavior. Instead, they labored to bring economics closer in line with how the world actually works, one small adjustment at a time. “‘Discovery commences with the awareness of anomaly,’” Thaler wrote in the introduction to The Winner’s Curse, quoting the philosopher Thomas Kuhn. “I hope to accomplish that first step–awareness of anomaly. Perhaps at that point we can start to see the development of the new, improved version of economic theory.”
One of my biggest gripes with data and marketing models (funnels) is that people tend to approach them as rules to live by. When faced with an anomaly, there are two responses: 1) wave it off as an anomaly; or 2) try to force the anomaly into the ‘model’. It’s a bit like the retrograde motion of planets: when the observational data pointed to non-circular motion of the planets, retrenching astronomers created these weird circle-within-circle movements that had no plausible explanation, but preserved the pretty circles. A third approach would be to evolve the model, soften its hard edges, add some dynamics to it.
The divide in economics between numbers and working models is becoming a chasm. What’s great about Thaler’s approach is that it functions somewhere between the wrecking ball of a new model, but avoids retrograde techniques. The thinking embraces the anomaly and allows for a punctuated equilibrous burst in the development of the model. “Like their intellectual godfather Thaler, the Obama wonks aren’t particularly interested in tearing down existing paradigms, just adjusting and extending them when they become outdated. (Thaler urges his students to master the same traditional, mathematical models their colleagues do if they want to be taken seriously.)”
Another nice passage highlights that there is still something along the lines of expertise and judgement that can live well with numbers:
The second difference is that the Obama hands tend to feel less hemmed in by establishment opinion. As one Obama adviser puts it, “Democrats want to be just a little bit different from Republicans, but not so different that they get attacked for being weak.” Like Hamilton, the Obamanauts generally reject this calculus–not because they favor some radical alternative, but because clinging to received foreign policy wisdom can preclude highly practical courses of action.
Of course, here they’re talking about foreign policy, which is not numbers-based. But the idea of “practical courses of action” — things which just make sense or feel right, pass the sniff test, resonate with a highly trained neerve ending have a place in their discussions, agenda, and plans.
It also allows for leadership without ignoring the polls, or innovation without ignoring the data.