When clever people do stupid things

Simon Wren Lewis asks:

There is no doubt that Lawson was far better qualified than many other Chancellors, and also that he was clever, so why did he get these major judgements wrong?

It's a good question because it broadens. Clever people gave us the poll tax, the invasion of Iraq, financial crisis and collapses of Silicon Valley and Credit Suisse.

So why do they so often get it wrong. There are many reasons.

One, which Simon attributes to Lawson, is arrogance. In ignoring his advisors, Lawson did not go as far as Kwasi Kwarteng (double first, PhD and Browne medal) who sacked one of his. And observers agree that one of the defining features of Fred Goodwin which contributed to the collapse of RBS was his arrogance. Being clever tempts men to ignore Burke's advice:

We are afraid to put men to live and trade each on his own private stock of reason; because we suspect that this stock in each man is small, and that the individuals would do better to avail themselves of the general bank and capital of nations and of ages.

Instead, they are prone to what Daniel Kahneman has called an illusion of skill. They believe their intellect equips them to foresee or control events which are largely unpredictable and uncontrollable in a complex world.

We see this in finance. Although intelligent investors do perform slightly better than others, they still make errors - such as buying expensive but poorly-performing funds - because they think they have the ability to spot good assets.

Closely related to arrogance is the failure to see that intellectual ability is often context-specific, that there are no general purpose experts. They forget Charlie Munger's advice: "one skill is knowing the edge of your own competency." Many men have made fools of themselves by spouting off outside their field of expertise: think of William Shockley, Bobby, Fischer, James Watson or Richard Dawkins...

Failing to know one's limitations isn't the only way intelligent people go wrong, as the story of Vicky Pryce shows. She went to prison because her great intellect was eclipsed by her hatred for her ex-husband. Which is a dramatic exemplar of a widespread tendency, for our intellect to fail us in times of stress. The better financial advisors tell people to never take decisions when we are emotionally aroused because this clouds our judgment and so "produces substantial financial costs".

Warren Buffett has famously warned of this. "Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ" he has said. "You don’t need a lot of brains to be in this business...What you do need is emotional stability."

The ancient Greeks had a good word - phronesis, which referred not to mere intellect, but to the ability to apply that intellect appropriately in the right context. You all know clever people who lack that skill.

One reason they lack it is that intellect is not the same as biasfreeness. In Human Inference, one of the earliest books in the cognitive bias literature, Richard Nisbett and Lee Ross wrote:

There is no inferential error that can be demonstrated with untrained undergraduates that cannot also be demonstrated in somewhat more subtle form in the highlt trained scientist.

And David Robson has written that "greater education and expertise can often amplify our mistakes while rendering us blind to our biases."

One such bias is groupthink. In The Blunders of our Governments Anthony King and Ivor Crewe say this was true of the emergence of the poll tax. The people charged with reviewing local government finance were very bright - William Waldegrave was a fellow of All Souls - but they also, say Crewe and King, "developed a considerable esprit de corps". And this can drain any group of self-criticism:

Some of the best and brightest in British government - none of those intimately involved was remotely a fool - nevertheless contrived to produce one of the worst and stupidest pieces of legislation in modern British history.

But we don't need groups to turn smart people into bad decision-makers. We can do it on our own. There is, for example, no link between intelligence and the myside bias. In fact, greater intelligence makes us more able to see the flaws in opposing ideas and more able to defend our own with sophistry. It's perhaps for this reason that George Orwell said that "some ideas are so stupid that only intellectuals believe them."

What he's getting at here is ideology. Of course, we all have ideology - yes, even (especially) "moderate" and "reasonable" centrists. What we must not do, though, is let our ideology distort our assessment of the facts. This is what Lawson and Kwarteng failed to do: the ideology that tax cuts would swiftly boost potential supply led them to underestimate the impact they would have on inflation, inflation expectations and interest rates. Similarly, proponents of the poll tax let the ideological view that users should pay for public services colour their judgment about the feasibility of that tax.

It's not just partisan ideology that can hinder our intellect. So too does professional deformation, the tendency of our professional training to distort our perceptions. Academics, for example, might be antipathetic to my point here because they are apt to overweight the importance of intellectual ability. In the same way, engineers to often see everything as a control problem; lawyers over-estimate the role of law in social change and - yes - economists can exaggerate the importance of incentives.

The same applies to politicians. Even the very smartest of them, merely by virtue of being politicians, will be biased. They are disproportionately likely to be over-optimistic about the ability of good policy to improve things; to exaggerate the competence and knowledge of top-down controllers (which contributed to the Iraq disaster); to under-play the value of emergence and freedom; and to overvalue hard work.

Raw intellect, then, is on its own useless and sometimes downright dangerous.

This is not to say decision-makers should be chosen for their stupidity: if this were so, we would now be living in a golden age of governance. What it is is an argument against epistocracy.

It's also an argument for ensuring that intellect exists not in individual brains but in institutions and habits. Except for a little seasonal investing, my investments are all passive: I merely make a regular monthly payment into tracker funds. I do this because good habits matter more than thinking about investing with all its pitfalls. The same should be true in companies. The best ones have organizational capital, routines which help limited people do good things. Well-functioning markets also do this, by weeding out egregiously incompetent companies. And the same could be true in politics: deliberative democracy could in principle mobilize the general bank and capital of wisdom.

But of course, our actually-existing institutions are far from ideal. The marketplace of ideas - of which the media is a big part - selects against good ideas and in favour of bad. Economic policy is bad not (just) because politicians are stupid but because there are powerful pressures from the forces of conservatism operating against good policy. Companies sometimes select in favour of psychopaths (pdf) and the overconfident. Academics produce bad research not because they are stupid but because of the compulsion to "public or perish." And the financial crisis was caused in part by bad incentives: bankers were paid well to ignore risks.

Which brings me to my point. We must avoid the schoolteacher attitude to politics and business, marking the work of politicians and businessmen as if it were a test of intellectual ability and singling out the best and worst students. Instead, we must consider institutions. Do we have those institutions which help filter out incompetence and bias, or which are resilient to error? The answer, for now, is: no.

Comments

[Jan Wiklund]

Swedish historian and high civil servant Per Nyström once explained the extraordinary skill of the Swedish Social-democrat government of the 30s and 40s that they "spent years as agitators in a social disadvantage" and became flinthard for that reason.

On the other hand we have Jeffrey Skilling, the superintelligent founder of Enron, who made the most glaring bankrupcy in American history, being the archetype of arrogance and ideology go wild, see Peter Turchin: Ultrasociety.

Being part of an intelligent surrounding is A and O, I think. Without it even the brightest fail, but with it the ordinary guy will make quite good things.

[Blissex]

«In The Blunders of our Governments Anthony King and Ivor Crewe say this was true of the emergence of the poll tax. [...] “Some of the best and brightest in British government - none of those intimately involved was remotely a fool - nevertheless contrived to produce one of the worst and stupidest pieces of legislation in modern British history”»

That is one of the stupidest comments I have read in a long while: the poll tax was a very well thought out scheme, it was just ahead of its time.

Conservatives have a "business" mentality and are outraged that the same national and local government services are invoiced to different people at different prices, and they think that is discrimination if not extortion (because they choose to ignore the "insurance against being unable to pay" element).

The poll-tax was a well-designed attempt to start fixing that at the local level. It failed because the thatcherite-radicals tried to achieve too much too soon, for political reason, not because it was a badly designed policy.

The thatcherite-gradualists have more cunningly devised a way around: first they segregate voters by income (by encouraging single-price-band estates and planning rules), then with Osborne they have cut the fund giving an extra to the poorer councils, and then they will more more spending powers locally. The whole effect is pretty much the same as having a poll-tax: poor areas will pay high rates of local tax to fund low levels of public services, and rich areas will pay low rates of local tax to fund high levels of public services.

That's not stupidity: it is a fairly clever ruse pursued over decades.

[Blissex]

«The same applies to politicians. Even the very smartest of them, merely by virtue of being politicians, will be biased. They are disproportionately likely to be over-optimistic about the ability of good policy to improve things;»

And here our blogger goes again on the fantasy that public policy is the result of character and cognitive biases... Here is good example:

«to exaggerate the competence and knowledge of top-down controllers (which contributed to the Iraq disaster);»

Oh please enough with the stupidity! The Iraq invasion was a great success for both the UK elites and the USA elites: the UK elites purpose was to demonstrate how loyal they are to the USA elites ("I am am with you, whatever" said Tony to George), and the USA elites purpose was to show they could afford to wreck a country and keep it occupied for decades, "pour encourager les autres". Therefore "Mission Accomplished". The externalities, the collateral damage? Not their problem. If after having worked in the City our blogger does not yet understand ruthless cynicism, or pretends to, too bad.

Consider the UK: has the public policy of pumping up property and finance rentierism over decades been the accidental result of much stupidity and cognitive biases repeated over decades? Of course not, just as the enormous expansion of the BoE balance sheet has not been a mere accident either (or that currently real "interest rates" are around -9% for "friends of friends"). A lot of people who matter have become a lot richer thanks to those, and that was not accidental.

Surely in the pursuit of their interests the elites do make mistakes, because of character and cognitive biases too, but they usually fix them and continue to pursue those interests. Despite those occasional mistakes for decades they have been winning.

[Blissex]

«Jeffrey Skilling, the superintelligent founder of Enron, who made the most glaring bankrupcy in American history, being the archetype of arrogance and ideology go wild»

Another admirable "Candide" who attributes to cognitive biases like “arrogance and ideology” what was a simple case of massive looting powered by fake accounting, one that made a lot of superintelligent people very rich. Too bad for Skilling who got caught out.

[D]

Typo "Bobby, Fischer"

[D]

Also "public or perish"

[RichGreenhill]

> …George Orwell said that "some ideas are so stupid that only intellectuals believe them."

As with most things Orwell is said to have said, he surely didn’t. https://archive.org/search?query=%22some+ideas+are+so+stupid%22&sin=TXT&sort=date

Perhaps he felt bound to recognise that non-intellectuals too are capable of believing even the stupidest of ideas, even if the consequences are less far-reaching.

Orwell does refer to the danger of intellect in his Notes on Nationalism: “…for an intellectual, transference [of nationalistic loyalty]…makes it possible for him to be much more nationalistic – more vulgar, more silly, more malignant, more dishonest – than he could ever be on behalf of his native country, or any unit of which he had real knowledge.” https://www.orwellfoundation.com/the-orwell-foundation/orwell/essays-and-other-works/notes-on-nationalism/

None of which is to detract from the point that great intellect may foster great folly.

[Jams O'Donnell]

"Do we have those institutions which help filter out incompetence and bias, or which are resilient to error?"

This:

https://www.theguardian.com/business/2006/mar/12/theobserver.observerbusiness5

throws some light on that subject.

[aragon]

I have to agree with many of the comments, a strange choice of intellectuals.

https://www.newstatesman.com/comment/2023/04/were-still-living-in-margaret-thatchers-world

Rather than low taxes, Thatcherism more often meant lower taxes for the right kind of people."

[...]

""If the left had ever perpetrated a similar confiscation on the rich, the right would have howled with righteous rage and pain," wrote Ian Gilmour, the former Conservative cabinet minister and Thatcher’s most eloquent Tory critic, in his 1992 book Dancing with Dogma."

As for Jeff Skilling:

https://en.wikipedia.org/wiki/Jeffrey_Skilling

List the red flags:

* A consultant for a major management consultancy.

* Mark to Market accounting

* Asset free business model.

"Skilling joked about the California energy crisis at one meeting of Enron employees by asking, "What is the difference between California and the Titanic? At least when the Titanic went down, the lights were on"."

* "rank and yank"

"The rankings were assigned on a curve at Skilling's direction, meaning that ten percent of people had to be graded five, regardless of absolute performance. They were given two weeks to try to find another job at Enron or be fired. The scheme came to be known as "rank and yank".[48] Skilling described the PRC process as "the most important process we conduct as a company".[49]

"On October 23, 2006, Skilling was sentenced to 24 years and four months in prison, and was fined US$45,000,000 (equivalent to $60,487,785 in 2021). All of his convictions save one were ultimately upheld on appeal, as was his sentence."

His world view:
"He believed that money and fear were the only things that motivated people.[47]"

Psychopath ?

[rsm]

《 the ideology that tax cuts would swiftly boost potential supply led them to underestimate the impact they would have on inflation, inflation expectations and interest rates.》

Was Reagan able to shape expectations differently, simply because he had a bigger personality? Have we forgotten that US inflation was 11% in 1981 when Reagan got his tax-reduction plan passed? Were pundits just awed by Reagan's larger-than-life projection of himself?

[aragon]

https://jacobin.com/2023/03/the-big-con-book-review-consultancies-history-privatization-neoliberal-capitalism

"Corporate consulting firms like McKinsey attribute their industry’s success to its capacity to increase efficiency and add value to the economy. In fact, there isn’t a single major act of state or corporate malevolence in our lifetime free of the big consultancies’ fingerprints."

[...]

"Not only have states lost the ability to perform — they have lost the ability to know what it is they are asking for, and so have little way to effectively evaluate or discipline the work of consultants."

[Blissex]

«"Do we have those institutions which help filter out incompetence and bias, or which are resilient to error?"
This: https://www.theguardian.com/business/2006/mar/12/theobserver.observerbusiness5 throws some light on that subject.»

But surely we should rely on Winchester School to train fair and wise wykehamist philosopher-kings to “filter out incompetence and bias” and to be “resilient to error” :-).

Considering that our blogger not so long ago wrote in “Against schoolteacher politics” that “There's a common mistake in looking at politics which is shared by the left and right - to regard bad policy as mere intellectual error”, I guess his yearning for philosopher-kings has moved from fantasizing about wykehamist individuals to wykehamist institutions :-).

As to the Observer article, it is even more entertaining:

“a number of factors, many of which come down to the human factors economic theorists carefully exclude. They overestimate power, fail to cut losses, underestimate cost and difficulty, and ignore the lessons of failure. They put too much faith in superficial impressions and repeat what worked in the past. Or they fall back on unexamined but deeply held ideologies. (An unqualified belief in anything, except the likelihood of being wrong, is a certain predictor of tears ahead.)»

As to me seems based on the assumption that in business like in finance, economics and politics it is so rare that decisions be driven by material interests that is hardly worth a mention (except indirectly as “Facts force the boss to choose between being 'in control' and being right. Many choose the former”).

It seems heart-warming to me that veterans of the City or business journalism would still write with such whiggish ingenuosness, unless of course that be disingenuousness :-).

[rsm]

《As to me seems based on the assumption that in business like in finance, economics and politics it is so rare that decisions be driven by material interests》

So why maintain the fiction that prices are actually driven by material supply and demand? What if inflation is only a sign of scarcity because it is backed out of a math model that is just a story that neglects human emotions? Why not simply index incomes to arbitrary price rises, rather than cling to some wrong model telling tall tales how material supply and demand determines prices?

[aragon]

https://www.newstatesman.com/politics/education/2023/04/rachel-de-souza-interview-big-tech-knows-harms-children-get-serious

"Yet De Souza’s greatest challenge was – and remains – the tech giants: “It was a far harder job.” After all, porn appears on websites not intended to host explicit content; young people told the commissioner they had seen it on social media platforms such as Twitter (41 per cent) and Instagram (33 per cent). “It’s not that the parent hasn’t put parental controls on: kids are seeing porn anyway,” she said."

Protecting Children on the Internet

I am techie, so it's a technical solution, so bite me!

For dummies of very little brain.

How do we protect children in the meat (real) world?

We create safe spaces from schools/playgrounds etc, and as they age,
they are allowed to explore less regulated/spaces, until adulthood (after Univeristy (according to student unions) they are exposed to the full adult world.

The BBC has Cbeebes,CBBC and the nine-o'clock watershed, all to keep the little darlings/monsters safe and age appropriate.

The press tells me thier are two internets, and open one and dark one!
So why can't we have tiers to the internet for children.

The techies will tell you that thier only difference is the software use and a number. (No not 0 and 1). That number is in the 2^16 range. (2^8 is 256, 2^16 is 65536: just for Rishi).

In fact their their are lots of internets see /etc/services on a Unix/Linux/BSD box, or https://en.wikipedia.org/wiki/List_of_TCP_and_UDP_port_numbers

"The range 49152–65535 (215 + 214 to 216 − 1) contains dynamic or private ports that cannot be registered with IANA."

So we can find a port or three in the nearly 5000 (4952) allocated by the INIA for children?

For example the web exists on port 80 or in the case of encrypted pages 443.
web browsers also used to support ftp on port 21. Tor just uses a different port.

So a web bowser fixed to (say port 3999,3998,3977), would not be able to access services on the internet but only (web servers) on port these ports as age approprate (Babies/Children/Teens etc.)

You could blacklist/whitelist IP addresses on ports for children, even geo-fence/firewall so you can enforce/prosecute providers of age inappropriate services on these ports.

Parents would just have to supply a browser locked into the age appropriate port. Policing software on your PC/Hardware is left to parents.

And leave the rest of us enjoy the Adult internet.

CSAM is better addressed in the meat (real) world, not by compromising peoples devices or encryption.

So their is my modest proposal for the Online Safety Bill, for dummies of very little people. Get off our internet, lest you be offended.

[aragon]

In above 4 digit numbers should be 5 digit.
e.g. 50000 and 39997

[ltr]

https://www.nakedcapitalism.com/2023/04/is-labour-purging-the-left-inside-the-partys-embattled-selection-process.html

April 20, 2023

Is Labour Purging the Left? Inside the Party’s Embattled Selection Process

[ The answer is, "of course." Labour will be Tory-lite or even just Tory and the point of this essay about clever people doing stupid things is that these are clever people who are determined to end traditional Labour and turn the UK to Conservative no matter what happens in elections.

Keir Starmer is a wild Conservative and making sure the UK will be Conservative in policy from now on. As for the UK, the general economic decline will continue since the wealthy will not be effected. ]

[Blissex]

«Keir Starmer is a wild Conservative and making sure the UK will be Conservative in policy from now on.»

I think that is an understandable misreading: my impression is that Starmer has always been a "progressive" Liberal.

However Liberalism was endorsed by a big chunk of voters when voting was restricted only to the affluent and wealthy, but since the extension of voting to all adults Liberalism (rightist on economy, leftist on values, globalist) has become a rather minority opinion.

So many Liberals have either infiltrated the Conservatives (e.g. Cameron, Osborne) or New Labour (e.g. Mandelson, Blair), or have merged with the SDP (and there is still a pure and minuscule Liberal party).

So he now panders to non-Liberals, such as "reactionary" affluent Kippers (rightist on the economy, rightist on values, nationalist) to use their votes to eventually slip in some Liberal policies.

That's not a clever person doing a stupid thing because of cognitive biases, but a long term and cunning political project to keep the "whigs" in power...

https://www.newspapers.com/newspage/122751398/
"The Sydney Morning Herald" 1966-08-12 (page 9)
T. Balogh, "The Establishment" (1959)
«"Whoever is in office, the Whigs are in power." It was Mr Harold Wilson himself, many years before he came to the Prime Minister's office»

[Blissex]

«a long term and cunning political project to keep the "whigs" in power»

One of funniest aspect of this is the Liberal obsession with PR: their conceit is that with PR all governments will be Liberal, because neither Conservatives nor Labour will be able to have a Commons majority without a coalition with the Liberals, which then will impose their policies.

I guess that's one example of a stupid conceit by clever people, because after a switch to PR both Conservatives and New Labour would dissolve into 2-3 smaller parties, being held together only by FPTP.

[ltr]

«Keir Starmer is a wild Conservative and making sure the UK will be Conservative in policy from now on.»

I think that is an understandable misreading: my impression is that Starmer has always been a "progressive" Liberal....

[ Thanks. A better explanation than I could have managed, especially being disappointed and angry. Really helpful. ]