Newmark's Door

A significant literature has recently emerged in management journals criticizing economics. For some pointers to examples, see "The New Bashing of Economics: The Case of Management Theory". (The fine Organizations and Markets blog has several other discussions about this. See also "Jeffrey Pfeffer in the Lion's Den" and "Do Economists Believe in 'Atomistic Individualism'?" Plug "Pfeffer" into the blog's search box at the top right of the page and you'll see more.)

One focus of the criticism is principal-agent theory. The criticism runs loosely as follows: academic economists believe that agents, in addition to trying to increase their principals' welfare, have their own utility functions to maximize. So economists teach that agents are initially tempted to shirk. Economists teach this theory to MBAs, who then become managers, who then distrust employees they see as tempted to shirk. Employees soon recognize that their managers view them with suspicion, so they begin to view their managers with hostility. The American workplace soon becomes a dysfunctional hotbed of anger, hostility, and suspicion.

And it's all because of economists' misguided and unhelpful but unfortunately believed models of humanity.

If you don't believe that as I didn't, you may want to read "Social Reality, the Boundaries of Self-Fulfilling Prophecy, and Economics" (Organization Science, May-June 2009; working paper version here) by Teppo Felin and Nicolai J. Foss. It makes the important point, buttressed by ample detail, that economic theory influences decision-makers in the long run when it is right (or at least better than alternative theories).

. . . other's expectations and beliefs about individual behavior predict that behavior not because of self-fulfilling prophecy effects, but rather, because beliefs and expectations about others' behavior are relatively accurate--that is, they are rooted in actual characteristics of human nature rather than arbitrary or false beliefs about it.

Simple. But important.

"You can never appreciate how irrational the system is until you’ve lived with it." --New York City chancellor of schools, Joel Klein..

If you have a strong stomach, read Steven Brill's account in The New Yorker.

. . . in four sentences [referencing Senator Kennedy's treatment for brain cancer that extended his life about a year]:

“We are all in favor of eliminating waste,” said Mark Pauly, a professor of health care management at the Wharton School at the University of Pennsylvania. “But when it’s your life that’s on the line, you tend to behave quite differently.”

“The economist in me says, If you want to save money, this is probably a good place to take it from,” Dr. Pauly said. “The human being in me says, I don’t want to do it.”

I tell my students that reasoning by analogy can be very powerful but it's also quite tricky: one has to pick the right analogy. Paul Krugman writes that our projected debt-to-GDP ratio isn't that bad because it will be less than what we had right after World War II. And in the 50s and 60s we did fine, right?

James Hamilton argues: bad analogy.

. . . stop what you're doing and read Mike Munger's tale of a new administrative policy at Duke. It's a Great Moment in University Governance.

Note to self: remember to refer to Duke now not as "the Harvard of the South" but as Spinal Tap University.

There are risks in the world. But it's worth bearing in mind that the risks are not usually as high as the major media makes them seem. This is a cool graphic to illustrate that point.

Link via Justin Wehr.

Charlotte Allen takes on the we-should-be-spending-a-lot-more-money-on-food-clothing-and-everything-else crowd:

Demanding that other people impoverish themselves, especially these days, in the name of your pet cause -- fostering craftsmanship, feeling "connected" to the land, "living more lightly on the planet" or whatever -- goes way beyond Marie Antoinette saying "let them eat cake." It's more like Marie Antoinette dressing up in her shepherdess costume and holding court in a fake rustic cottage at the Petit Trianon.

Those who think that there is something wrong with owning more than two pairs of sneakers or that exquisite fastidiousness about what you put into your mouth equals virtue need to be tele-transported back to, say, the Depression itself, when privation was in earnest and few people had telephones, much less cellphones. Read some 1930s memoirs: Back then, people who couldn't afford "quality" furniture slept on mattresses on the floor and hammered together makeshift tables out of orange crates. They went barefoot during the summer and sewed their children's clothes out of (non-organic) flour sacks. That was what "cheap" meant then -- not today's plethora of affordable goods that the social critics would like to take away from us.

Not to mention that for over 95% of recorded history, one of the average person's main concerns in life was avoiding hunger, and social do-gooders complained, horrified, about starvation, and now that we have finally made some measurable progress, they're complaining bitterly about that, too.

I have the distinct impression that you just can't please some people.

Clearly, information we need to know. Featuring tidbits like this:

That raises a slightly awkward question: If zombies are constantly eating, then how come they never poop?

Schlozman doesn't know for sure, but he has at least one promising theory: Maybe the living dead are constipated.

Now we know why zombies are always moaning.

And if you're worried about zombies: "Mathematical Model for Surviving a Zombie Attack". (Non-technical summary of an apparently technical paper published in a fairly obscure place.)

. . . because you've got to root for a guy who can give a press conference like this.

Link via Kids Prefer Cheese.