Irrational fear: No good at risk

The Economists reviews of “Risk: The Science and Politics of Fear” by Dan Gardner
THE official death toll from the September 11th terrorist attacks in 2001 was 2,974. But in 2002 America’s death toll on the roads grew by more than 1,500—casualties of the terrorism-inspired exodus from safe aeroplanes to dangerous motor cars. A swan washes up on a British shore, dead from bird flu, and the press panics, while the 3,000 people who die every year on the country’s roads (13 times the number of people who have ever died from bird flu) go largely unremarked. Human beings are notoriously bad at dealing with risk. Two new books explore why, and investigate the effects that misunderstanding risks can have on public policy. The first, an excellent work by a Canadian writer, Dan Gardner, is a broad meditation on the nature of risk, beginning with a psychological explanation for why people find it so difficult to cope. Mr Gardner analyses everything from the media’s predilection for irrational scare stories to the cynical use of fear by politicians pushing a particular agenda.

His take on terrorism in the book’s penultimate chapter is refreshing. He punctures ludicrous claims that “this conflict is a fight to save the civilised world” (George Bush) or that terrorism’s threat is “existential” (Tony Blair), and expertly deflates the more self-serving statements made by the terrorism industry that has mushroomed since the September 11th attacks.

Mr Gardner never falls into the trap of becoming frustrated and embittered by the waste and needless worry that he is documenting. A personal anecdote about an unwise foray into a Nigerian slum in search of a stolen wallet disposes of the idea that the author is immune to the foibles he describes. What could easily have been a catalogue of misgovernance and stupidity instead becomes a cheery corrective to modern paranoia.

The second book, by Simon Briscoe, a journalist on the Financial Times, and Hugh Aldersey-Williams, a writer, aims to be more focused. It forsakes a general treatment of risk for a rigorous analysis of several dozen of the most popular media scare stories, ranging from family breakdown and over-inflated housing markets to climate change, genetically modified foods and unsafe vaccines.

The book, however, feels rushed, which is a shame because Mr Briscoe is something of a statistician. Many chapters come to no definite conclusion on the magnitude of the risk they analyse, instead simply presenting a mass of evidence and leaving it for the reader to decide. A gimmicky scoring system gives each story marks out of five in three separate categories of “panic”, “risk” and “personal empowerment”, but nowhere is it explained exactly what the scores mean. As a guide to which risks to fear and which to ignore, it is not much use.

The chief paradox in both books is that anybody alive today faces far fewer risks than at any time in human history. Diseases that killed millions are found only in medical textbooks in large swathes of the world; life expectancy has risen hugely over the past two centuries; and, despite misty nostalgia for better times, most societies are safer today than even 50 years ago. Yet fear and panic have not disappeared—instead of worrying about polio, famine or war, people fret about wrinkles, paedophiles and virtually undetectable levels of industrial chemicals in food. Both books try to correct this irrational view of the world, reassuring readers that most of the hobgoblins by which they are menaced are unnecessarily frightening.

Risk: The Science and Politics of Fear.
By Dan Gardner.
Virgin; 368 pages; £17.99

Economist.com

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What CEOs are Reading

The common perception is that CEOs are reading the latest popular management books to help them with their difficult job. An article in the New York Times suggests otherwise. I am not sure if the CEOs that Harriet Rubin portrays in here article are representative of all CEOs and I think the title of the article “C.E.O. Libraries Reveal Keys to Success” is an overstatement, but any manager should read what she has to say. 

Harriet Rubin: Michael Moritz, the venture capitalist who built a personal $1.5 billion fortune discovering the likes of Google, YouTube, Yahoo and PayPal, and taking them public, may seem preternaturally in tune with new media. But it is the imprint of old media — books by the thousands sprawling through his Bay Area house — that occupies his mind. “My wife calls me the Imelda Marcos of books,” Mr. Moritz said in an interview. “As soon as a book enters our home it is guaranteed a permanent place in our lives. Because I have never been able to part with even one, they have gradually accumulated like sediment.” Serious leaders who are serious readers build personal libraries dedicated to how to think, not how to compete. Ken Lopez, a bookseller in Hadley, Mass., says it is impossible to put together a serious library on almost any subject for less than several hundred thousand dollars. Perhaps that is why — more than their sex lives or bank accounts — chief executives keep their libraries private.

The full article is available at:

http://www.nytimes.com/2007/07/21/business/21libraries.html?em&ex=1185163200&en=a2705daffa9a1d95&ei=5087%0A

New School of Strategy & Entrepreneurship launched in Sydney

The UNSW Academic Board has approved the creation of a new School of Strategy and Entrepreneurship within the Faculty of Business (incorporating AGSM) to continue AGSM’s general management teaching and research. To be headed by Associate Professor Peter Murmann, the new school will focus on innovation and entrepreneurship as a subject within general business. Welcoming the move, Professor Alec Cameron, Dean of UNSW’s Faculty of Business (incorporating AGSM), said the new schools’ vision was to be recognised as Australia’s leading cluster of scholarship in the area of strategy and entrepreneurship research, teaching and executive development. “After the integration of AGSM and the Faculty of Commerce and Economics there were several existing schools but none was dedicated to general management and strategy,” said Professor Cameron. “So as part of the integration the idea was to create a separate school, and to include entrepreneurship to highlight the fact that the concerns of the general manager and the entrepreneur were both being addressed and people were being prepared for these roles.”

Professor Cameron said a Centre for Innovation and Entrepreneurship would be launched, to be affiliated with the new school. “It’s so important that the faculty has a dedicated group of academics focussing on general management and entrepreneurship,” said Associate Professor Murmann. “This will bring a new capability to the Faculty of Business and extend to it the teaching capability AGSM has had in its Executive programs.
Although the initial headcount of the School will be eight, Associate Professor Murmann said there were plans to expand this to as many as 20 academics over the next few years.

The school’s teaching focus will cover some undergraduate courses, newly developed Masters courses, the full-time MBA and the MBA (Executive), where the aim is to provide a fully integrated experience and ensure that it retains its status as the “number one strategy course for practising managers in South-East Asia.”

In the area of research, Associate Professor Murmann said the “overall goal” is to have all members of the school recognised “for their intellectual contributions to scholarship, both within the international research community and the local and regional business communities.”

“We will benchmark our faculty’s performance against the best in the region and the best in the world,” Associate Professor Murmann said.

Associate Professor Murmann said that a short term objective is to attract additional scholars with international reputations to the new school.

“Building on the excitement about this new school both at UNSW and the business community, we are keen to bring a leading scholar in the entrepreneurship area to the school. Our goal is to create a vibrant, intellectual and scholarly research environment with active peer support and feedback.”

The Australian Graduate School of Management is part of the UNSW Faculty of Business.

The Global Climate Crisis

The website for An Inconvenient Truth provides the basics facts about the science of climate change.  Watch the trailer for film.

Give the DVD to your friends this holiday season.

Commissioned by the British government, the economist Stern published on October 30th his study evaluating the economic consequences of global warming. He writes: “The scientific evidence is now overwhelming: climate change presents very serious global risks, and it demands an urgent global response (p. i) ...There is still time to avoid the worst impacts of climate change if strong collective action starts now.” (p. xxvii) You can download a summary of his review here. If you don’t have time to read the 27 page summary of the 600 page report, here is a short review of its conclusions in the New Yorker.

Reflections On “The Long Tail” - Give me Good Data!

A few days ago, I came across a very positive review of The Long Tail, a new book by Wired Maganize writer Chris Anderson. The book’s main thesis is that “the future of commerce and culture isn’t in hits, the high-volume head of a traditional demand curve, but in what used to be regarded as misses - the endlessly long tail of that same curve.” The books purports to show that the 80/20 rule (most sales derive from a few products) does not apply any more with internet retailing because internet retaling can stock many more items. This morning Lee Gomez in his Wall Street Journal column trashed Anderson’s analysis, claiming that Anderson’s data was flawed. (You can read the Gomez colum “Long Tail’ May Not Wag the Web Just Yet”  on WSJ.com or through your library’s article database.) Anderson in turn claims that Gomez did not get the data right and wrote a facinating rebutall on his website. What this exchange underlines is that getting good data and working meticulously to draw the correct conclusion often is worth a “fortune” for managers. More broadly, before you adopt a new fashionable business idea, ask yourself what data supports that the idea in fact is going to work. With more data you might have realized that the idea hurts as often as it helps.

The Essential Drucker: The Best of Sixty Years of Peter Drucker’s Essential Writings on Management

One of the things that made Peter Drucker such a superb writer on management was his intense and wide ranging curiosity about everything in the world and his keen eye for the essential aspects of reality. Unlike many other people who paid with their life for not wanting to see reality, Drucker, for example, extrapolated from what Hitler had said in the years before becoming Chancellor of Germany in 1933 and left for England the moment Hitler rose to power. Drucker died a few days ago at age 95, but many of his insights are as valid as ever. Drucker’s writings have been edited into one book a few years ago, which is available electronically on Kindle. The value of the book lies not so much in giving concrete instructions about what you should do as a manger but in making you think about your own situation. Here are some of the key insights, the foremost being that management is about human beings.

Insight 1: Management is about human beings. Its task is to make people capable of joint performance, to make their strengths effective and their weakness irrelevant.

Insight 2: Because management deals with the integration of people in a common venture, it is deeply embedded in culture. What managers do in Germany, in the United Kingdom, in the United States, in Japan or in Brazil is exactly the same [namely, to integrate people]. How they do it may be quite different.

Insight 3: Every enterprise is a learning and teaching institution. Training and development must be built into it on all levels - training and development must never stop. 

Insight 4: Profitability is not the purpose of, but a limiting factor of business enterprise and business activity. Profit is not the explanation, cause, or rationale of business behavior and business decisions, but rather the test of their validity.

Insight 5: True marketing starts out…with the customer, his demographics, his [her] realities, his [her] needs, his [her] values. It does not ask, What do we want to sell? It asks, What does the customer want to buy.

Insight 6: In every single business failure of a large company in the last few decades, the board was the last to realize that things were going wrong. To find a truly effective board, you are much better advised to look in the nonprofit sector than in our public corporation.

Source:

Even the Best Cannot Predict the Future

It is very useful to recognize that the social world is too complex to predict well what will succeed and what will fail. Those who think they know with great certainty what will succeed run the danger of overinvesting in their pet scenarios. What is the lesson? Just like with stocks, we should always have a portfolio of beliefs about the future, reducing the risk of getting stuck with the wrong scenarios.

“I think there is a world market for maybe five computers.”
—Thomas Watson, chairman of IBM, 1943

“I have traveled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won’t last out the year.”
    —The editor in charge of business books for Prentice Hall, 1957

“But what ... is it good for?”
    —Engineer at the Advanced Computing Systems Division of IBM, 1968, commenting on the microchip.

“$100 million dollars is way too much to pay for Microsoft.”
    —IBM, 1982

Who Says Elephants Can’t Dance: Inside IBM’s Historic Turnaround

In the early 1990s, IBM was in danger of going bankrupt. Loius Gerstner was called in to turn the company around.  Anyone who is trying to change a formerly successful orgazation will benefit from reading Gerstner’s thoughts on change management. Beware: the book starts out slow, turning off many readers. But after the first 20 pages, Gerstner’s training as an organizational consultant provides him the analytic language to lay out what are the key challenges in changing large organizations. Because he was an outsider at IBM, he has no reservations to analyze how IBM got itself into a near death experience.  I highly recommend this book.

The Freedom Tower Case: Why is group decision making not better individual decisions

Individual human beings have limited skills, knowledge,  and expertise can get carried away by emotions when making decisions. One would think that involving multiple people in a decision could overcome the limitations of individual decision making but social psycholgoists have long known that groups have their own limitations. The New York Times published a pertinent article on how a comittee came up with the redesigned Freedom Tower that architectual critics find dissappointing given the grandeur of the originial proposal.

Here are excerpts from the article At Ground Zero, Vision by Committee.

In a recent simulation, Dr. Beth Dietz-Uhler, a psychologist at Miami University of Ohio, analyzed the behavior of small groups of three or more people acting as city council members, creating a park on land donated by a wealthy resident. As the simulation unfolded, information was provided that showed the land was contaminated, yet the acting council members, especially those who felt strongly bonded to the group, often stuck with their decision to build a park out of loyalty to the team.

Read the full article on the NY Times website.

The Original Design