Contradictory Information

November 23rd, 2011 - Ian Moore

When we are presented with information that fits with our beliefs or tentative decisions we will tend to accept any information that fits and not investigate further. When presented with information that contradicts we will tend to look further and check the validity of the information.

This leads to a skewing of the information that we take in. Most information will have caveats and situations in which it does not apply. When we dig deeper we may find more information that contradicts our position but we are also bound to find information which confirms our distrust of the initial contradictory information. Of course if the initial situation concurs with our initial ideas we don’t look further and so never find any subsequent information that might contradict us.

Psychologists have shown repeatedly that when people taking part in an experiment are presented with a mixed body of information they will pick out that which confirms their beliefs and find reasons why contradictory information does not apply. In a group with opposing beliefs the same information will be interpreted by both sides as supporting their own positions.

For effective decision making we need to firstly be aware of this behaviour and then develop techniques and approaches to ensure that we investigate supporting and contradictory information to the same depth and apply objective criteria to the assessment of both type of information.

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Resilience and Jobs

November 16th, 2011 - John Plodinec

I am an inveterate, voracious and omnivorous reader. No cereal box near me goes unread. Books, blogs, and newsletters are fed straight into my bloodstream. This weekend I read two very good pieces that together got me thinking about jobs, recovery from the Great Recession, and community resilience.

The first was by John Mauldin, one of the best writers on financial matters I’ve found (www.johnmauldin.com). The second was by Ashwin Parameswaran in his series “towards a more resilient macroeconomy.” Both tackled the question of jobs and unemployment and provided a useful point/counterpoint to me.

Quoting first from John Mauldin, looking at where the new jobs came from in the last 15 years:

“…Big business is a net drag on job creation, and small businesses are a wash. Governments have seen job growth, but where does the money come to pay government employees?

Net new jobs come from new businesses (defined as those started within the last ten years). Yes, some of those businesses become Google and others are the local dry cleaner or donut shop. But those start-ups (if they survive) are the source of new jobs.”

Ashwin’s piece (warning – desert-dry academic writing!) focused on the role of innovation and competition in employment. He considers technological unemployment (where a company or industry’s market is destroyed by a new way of doing what has been done before – think buggy whips at the dawn of the automotive age), and truly innovative products that create brand new markets. He asserts that we are seeing a dearth of innovations across our economy, primarily due to a lack of investment.

What binds these two together is that each points to investment in startups as the best way to create jobs. You can’t have startups if there isn’t money to make the initial investment to create the business. You can’t have innovative new products without investing in their creation. This implies that the best way out of the economic morass we’re in is to encourage investment in new businesses in every way we can, and to remove barriers and disincentives to their formation.

This is where communities need to look inward and begin asking some tough questions. What are we doing to encourage startups? Do we have an able workforce? Do we have unnecessary permitting or licensing requirements? Are our transportation systems blocking access to areas that need new businesses?

Do we have sources of capital in our community? Rural agricultural communities might say no, but they’d be wrong. Some very innovative Canadian farming communities are forming micro-investment funds that are creating new businesses. Are we taxing startups at the same rate as large companies? Most importantly, do we understand and appreciate the important role that businesses play in our community, providing jobs, taxes, and, often, crucial support to the things that pull us together – the arts, sports teams, and community events? That means, are we working with businesses to make them – and the community – stronger?

Mauldin points to an article in last week’s Wall Street Journal by Daniel Henninger. He interviewed many businesses that had moved to Texas. The overwhelming sentiment was that it wasn’t just lower taxes or no unions, but a willingness to get things done – a can-do attitude. Communities that care about jobs can learn a great deal from Fluor’s experience in leaving California and coming to Texas. According to Alan Boeckmann, former CEO:

[When the 2006 move became known] “California made no attempt to keep us… things started to happen quickly [in Texas], without us initiating them. The Irving Chamber of Commerce did orientation sessions for employees and spouses, even helping with new-house searches. Or ‘little things’: Irving on its own renamed a street Fluor Drive, which in California or the Northeast would be laughable.”

Resilient communities recognize that businesses are vital parts of the community, and central to the community’s survival. These communities seek to encourage new businesses so that the communities can remain relevant in a changing world. If resilience is adaptation, these communities are discovering that fostering new businesses in the community is a way that they can actively be a part of the future, and thus more resilient.

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Decision Making: Handling Information

November 14th, 2011 - Ian Moore

When planning for resilience the way we interpret information is critical to our planning and decision making. This article looks at some of the ways in which our processing of information is flawed and suggests some ways of countering this.

Our brains have evolved over hundreds of thousands of years to help us survive and to that end they are highly effective decision making instruments. However in modern day situations, and especially in business, these mechanisms for decision making may not be the best. So rather than spending time on developing sophisticated decision making strategies it is bound to be useful to understand some of the mechanisms that our brains have developed to make decisions. By understanding these mechanisms we can become sensitised to their shortcomings and so develop approaches to counteract these shortcomings and thus make better decisions.

The way we process information is critical to our decision making. Unfortunately we do not always process this information correctly. We do not always see what is actually there. If we are basing our decisions on correct information which we have processed incorrectly this will obviously lead to faulty decisions.

We tend to see what we expect to see. Have a look at the following diagram. Which square looks darker, A or B?

The vast majority of people think that square B is lighter than square A. However if we draw some uniform grey bars on the diagram we can see that A and B are exactly the same shade.

In the first diagram without the bars we make the assumption that the cylinder is casting a shadow and our brains automatically make the B square appear lighter than it actually is. Now look back to the diagram without the bars on. Even though you know that squares A and B are exactly the same shade B still appears to be lighter.

Here is another example of how we see what we expect to see rather than what is actually there. Try reading the following:

I cnduo’t bvleiee taht I culod aulaclty uesdtannrd waht I was rdnaieg. Unisg the icndeblire pweor of the hmuan mnid, aocdcrnig to rseecrah at Cmabrigde Uinervtisy, it dseno’t mttaer in waht oderr the lterets in a wrod are, the olny irpoamtnt tihng is taht the frsit and lsat ltteer be in the rhgit pclae. The rset can be a taotl mses and you can sitll raed it whoutit a pboerlm. Tihs is bucseae the huamn mnid deos not raed ervey ltteer by istlef, but the wrod as a wlohe. Aaznmig, huh? Yaeh and I awlyas tghhuot slelinpg was ipmorantt! See if yuor fdreins can raed tihs too.

Even though all the words are seriously misspelt we still impose meaning on them. We are not seeing what is actually there but what we would like to see and what we expect to see.

So that is just a couple of examples of how we see what we expect to see rather than what is actually there. In order to make effective decisions we need to see what is actually there not what we expect to see.

If you would like to improve your decision making by seeing what is actually there, try making a list of the ways that you see what you expect in information rather than the actual information. When you have done this you could go through the list and see if you can develop any techniques that would help you see information as it actually is.

There is another way in which information affects our decision making. That is when we have to much information. The next diagram is a simple picture. It is not animated in any way. However when you look at it, it will appear to be moving.

This is a nice example of how too much data causes confusion. Even though the diagram is not moving it still appears to move because of the way our eyes view the picture. If you don’t believe that it is not moving try focusing on one individual spot. You will see that it is not moving but other areas appear to move. Then try to focus on one of the areas that still seems to be moving. It will now appear to be stationery and other areas will appear to move. Or if you focus on the two small red markers on the two top, middle circles, you will see that these circles are stationery.

If you would like to improve your decision making try making a list of the ways that too much data causes problems for your decision making. When you have done this try going through the list and see if you can devise techniques that would help.

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A Path to Economic Recovery and Resilience

November 10th, 2011 - John Plodinec

Just over a year ago, I wrote about what a more resilient economy might look like (see Recovering from the Great Recession – What Might a More Resilient Economy Look Like?). I talked about a value-driven rather than a consumer driven economy. That post begged the question, though – how do we get there from here? In the next few paragraphs, I’ll try to outline an answer to that.

Before I do, however, my disclaimer. I am clearly not an economist (I’m not sure that’s a disqualification, since the economists are all over the map on how to recover!). Further, politicians will be making the most crucial economic decisions over the next few months, and they are clearly not economists (not to mention their roles in getting us into this mess in the first place).

Our national economy is in what economists call a liquidity trap. In a liquidity trap, there is relatively little investment because those with money are very risk averse. Consumers don’t spend, businesses don’t hire, and everyone looks at the economic glass as half empty. And that’s what we’re seeing right now – individuals and businesses are paying off their debts, individual debt is at levels not seen since the early 1990’s; those who can are saving at rates not seen since the 1970’s; and businesses are sitting on their cash (and not borrowing) rather than investing in new products and jobs.

The two antipodes of the debate over how to fix our economy – escape the trap – are characterized by the “Spend, Baby, Spend” school and the Tea Party’s call for government austerity. The Spend, Baby, Spend school is epitomized by economists such as Paul Krugman, who vehemently believe that our federal government should be spending more, much more, to spur demand for goods and services. This group points to our nation’s crumbling infrastructure as a place where investment would create jobs, creating demand, and facilitating economic recovery. At its core, this view sees lack of demand for goods and services as the problem that needs to be addressed.

The Tea Party-ers, on the other hand, see the size of our government as the core problem. In this view, a smaller government, with fewer regulations and lower taxes, would put money back into people’s hands to spend on goods and services, thus jump starting the economy.

You’ll notice, however, that neither view really addresses the core problem – how we get out of the liquidity trap. Or, said a little differently, how do we help businesses, in particular, become less risk averse so that they will invest the cash they are now sitting on in new equipment or new jobs. Framed this way, it seems that government spending per se is somewhat irrelevant to getting out of the trap. Recovery will come only when people have confidence once again that there is a secure future. That’s not to say that government spending is unimportant, just that stimulus spending doesn’t really seem to be the right answer.

If this is true, then what should government do to put us on the road to a resilient economy? Simply put, governments should do those things that will remove uncertainty from people’s minds and those things that will make people more confident in their futures. In this light, it seems that we need to take some of the medicines prescribed by both schools of thought to help bring us out of our national malaise.

We need to recognize that the current pace of regulation creation is creating great uncertainties for businesses and individuals. In the first two years of the present administration in Washington, we created more regulations than we did in eight years of the previous administration. Further, whether we like it or not, small businesses are already telling us they won’t be hiring in the near term because of the possible impacts of health insurance reform (and those impacts won’t be fully known until 2014 at the earliest!).

We also need to recognize that our national debt is unsustainable – if we continue on our present path, we as individuals eventually will end up paying exorbitant amounts in taxes to support intolerably high interest rates to service both our national and personal debt. We as individuals or investors or business owners recognize this and are saving at almost unprecedented rates to provide our own safety nets for ourselves.

However, we also have to recognize that the government must continue to make investments that will help us to have a more certain future. We must invest in our infrastructure – not to stimulate spending but to ensure that we can continue to move goods, people, and information where they are needed. If we don’t, we will spend far more to respond to and recover from the disasters that will expose our infrastructure’s fragility.

We also need to heed the lessons we have already learned about what went wrong and put regulations in place that address the root causes of those problems. The current regulatory framework for the financial industry has much that is wrong with it; recently passed legislation is likely to drive smaller community banks – who in the main were not at fault in getting us into this trap – out of business. This will make it more difficult for entrepreneurs and small businesses to get the capital they need to start up or expand their businesses, i.e., will make our economy even less resilient. Meanwhile, many of the more speculative financial sectors remain unregulated even though they were prime actors in our economic tragedy (and are doing nothing to help us recover).

We must provide a safety net to those of our citizens with special needs. Not because of their vulnerability but as an investment in their future and in ours. The safety net should be focused on outcomes – for example, living healthier and more productive lives – rather than means, for example insurance. Just as with our physical infrastructure, if we don’t make these kinds of investments we will spend far more to respond to and recover from the human tragedies that will result.

I don’t think it requires a rocket scientist (or a Ph.D. economist!) to see a path to recovery. It only requires a clear recognition of where we are as a nation, and then some common sense actions to move to where we need to be. We have to cut government spending and the pace of regulation, but we also need to invest in ourselves and take actions to prevent us from falling in the same trap again. At its core, we have to restore our confidence in ourselves if we are to recover. Neither school of thought, neither political party, can or will be successful unless they grasp this simple truth – this is the only path to economic recovery and greater national resilience.

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Resilience for Dummies: What is Community Resilience

November 8th, 2011 - John Plodinec

I read a lot – if I don’t have a newspaper or a magazine or a journal article to read, I’ll read cereal boxes. Or I’ll get on the internet and find something there. In doing this, I’ve discovered a new phenomenon – the proliferation of books “X for Dummies” – Puppies for Dummies, Stained Glass for Dummies, Relationships for Dummies. All designed to help the neophyte learn enough to at least be unafraid of the subject and willing to take basic actions. For those like me, whose ignorance is legion, there is even a website – dummies.com – where you can find basic help on almost any topic.

So, over the next few months, I’m going to be writing Community Resilience for Dummies – detailing what this neophyte has learned about community resilience in a way that I hope others can use. As we in CARRI have talked to people about resilience it has become clear that – like sustainability – resilience is a word in danger of losing its meaning because it is being used by so many in so many different ways. So I’ll start by talking about what community resilience is.

As do so many others, we at CARRI have our own definition of resilience:

A community’s ability to anticipate risk, limit impact, and bounce back rapidly through adaptation, evolution, and growth in the face of turbulent change.

In fact, on the CARRI website, you’ll find a document that compares and contrasts many of the definitions.

Most people who are using the term resilience are doing so in a crisis context – a crisis being anything that strains the community’s resources. While resilience may be an inherent trait of a community, its resilience is only seen in how well it recovers from the crisis. As a community evolves over time, it may become more or less resilient. Thus, in these parlous economic times, most communities have become less resilient toward natural disasters or human-induced crises due to dwindling resources – both human and financial. Those communities that have maintained their same level of resilience (and the few that have enhanced it) have generally done so by finding ways to adapt to the financial crisis they face.

Adaptation is the key to resilience – it’s the ability to turn disaster into opportunity; to create social capital to augment finance; to form partnerships to replace or repair needed infrastructure when no one entity has enough money to fund projects. Greenburg, KS’ response to the devastating tornado that hit the town is an example. Prior to the 2007 storm, the town was in danger of dying. It used the opportunity provided by the devastation to attempt to create a different and more sustainable Greensburg.

Mayor Tom Tait’s (Anaheim CA) “Hi, Neighbor” campaign is an example. It recognizes that in the event of an earthquake, one’s neighbors are the real first responders, and should be the enduring support structure for individuals and families. The campaign seeks to build up the “social capital” of Anaheim’s neighborhoods.

The Port Authority of New York and New Jersey provides another example. It has formed a public-private partnership to fund and operate a replacement for the Goethals Bridge that links New York and New Jersey. This type of arrangement would have been unheard of even five years ago; now, it represents a very innovative way for a community to do what’s necessary with less.

Thus, while resilience is not a uniquely American trait, this ability to make lemonade when you’re handed lemons is embedded in the American spirit. And it doesn’t take a dummy to see that our resilience is being tested as never before. In the next post in this series, I’ll begin looking at what makes up community resilience – starting with leadership.

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