Category Archives: Organizations Aren’t Calculators

Skeleton of the Framework v0.6

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Now that I’ve used Getting Green Done to flesh out part of my argument, here’s the latest version of my framework.

The conventional economic framework, a.k.a. Econ 101, says the economy can be broken into 3 layers:

  • People are calculators: they rationally pursue their self-interest given near perfect information about the world
  • Organizations are calculators
  • The Market is mostly efficient (with some help from the government)

The RTE framework says, that’s not how the economy works. The economy is like a game with complex rules that shape folks actions at different levels of the economy. In other words, the real world looks like this:

So if you want to make the world a better place, a simple, clean Econ 101 model won’t cut it. You’ve got to get your hands dirty and understand how the economy actually works. To do that, you need 2 perspectives on the economy:

  • Practitioner’s Perspective: Understanding the rules that shape the actions of individuals and organizations in a particular niche of the economy.
  • Movement Perspective: Stepping back, looking at the bigger picture, and forcing yourself to ask not what the most personally satisfying or most comfortable act we can take but what’s the most effective action.

Here’s how the 2 perspectives are related to the 3 levels of the economy:

PE Level Movement Perspective
Organization Level Movement Perspective Practitioner’ s Perspective
Individual Level Practitioner’s Perspective

What feels like it’s working:

  • The 3 levels of the economy
  • The metaphor of economy as a game with rules
  • The ideas/principles embedded in the 2 Perspectives

What’s missing or needs work:

  • Now that the idea of Perspectives has been rattling around in my head for a few weeks, it doesn’t feel like it’s working. I’m not sure why. It might make more sense to focus on the principles underneath the Perspectives rather than the Perspectives themselves. I don’t want to lose the impulse behind the idea of Perspectives. But I need something more fundamental, more bedrock.
  • Issues like the role of race in the economy are implicitly in the framework, but they feel like they are getting buried.
  • There isn’t a clear connection between understanding the mechanics of how the economy works and what really matters to us — our dreams, desires, fears, and overcoming feelings of helplessness. For example, where does a feeling like “we want our country to work again” fit in the framework?

Why Understanding the Actors & Their Ecosystem Matters

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Recently NPR ran a piece about the impact behavioral economists — the folks who argue that people aren’t calculators — are having on the Obama administration. NPR gave a sample of the dizzying amount of hard empirical research backing up behavioral economics, then asked, “So why would economists assume that human beings are so hyper-rational?” One answer’s obvious — house of cards, meet puff of wind:

An imperfectly rational human being challenges a really important idea: the notion that markets work well because individuals can be counted on to make the best choice for themselves.

But there’s another, less obvious reason. Economists like their models the way Martha Stewart likes her doormat: clean and under control. Their reaction to the little-kids-with-muddy-bare-feet messiness of how people actually make decisions?

“Behavioral economics has identified a dizzying array of human foibles. We clearly can’t incorporate all of them, and because of that, people feel that incorporating one error into your model may be just as unrealistic as incorporating none,” says Ed Glaeser, a professor of economics at Harvard University.

Or to use more technical language, ewwwww.

So if you decide that you can’t ignore the muddiness of reality, what do you do? That’s the reason for the next step in the model: Understand the Actors & Their Ecosystem. If we want to push the economy towards a particular value that matters to us, we can’t make simple assumptions about the way the world works just because it’s easy. We’ve got to dig in and get dirty.

Up next: getting dirty on the farm.

Computers Won't Save Healthcare (RTE Assumptions in Action)

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There’s one thing Democrats and Republican politicians agree on when it comes to healthcare reform: digitizing healthcare records could be a godsend. When it works, it can improve patient care, reduce medical errors, and save billions of dollars a year — a crucial consideration given the threat that skyrocketing healthcare costs pose to our economic future.

But in an article entitled “The Dubious Promise of Digital Medicine,” Business Week pours a big bucket of cold water on this enthusiasm. To understand why computerizing healthcare records is running into trouble, we’ll take a look at the problem using the three assumptions about the economy I explored in the last few posts.

People Aren’t Calculators

In theory, Healthcare IT should be able to radically reduce the number of medical errors. For example, with computerized records nobody has to decipher a doctor’s handwriting. In practice, the track record is mixed.

The Joint Commission, a nonprofit group that inspects and accredits 15,000 health-care organizations, … issued a warning in December about problems with complex health-tech systems. It cited one U.S. pharmaceutical database that found 43,372 medication mistakes, or about 25% of the total reported in 2006, involved computer technology. The problems included flaws in data entry, inadequate software, and confusing screens.

As I’m sure you know from painful personal experience, a lot of software is built by geeks who don’t pay attention to how people actually think, let alone what it’s like to use the software in a hectic place like a hospital. And if software doesn’t work the way people think, it can actually increase errors.

Take the experience of Dr. Mark Del Beccaro, chief medical information officer Seattle Children’s Hospital.

Del Beccaro soon became troubled by incidents of children suffering medication overdoses despite alerts from the Cerner software. He asked the doctors involved whether they had seen the alerts onscreen. “They told me, ‘I get so many alerts, I click through [them],’ ” Del Beccaro says. “They do become mind-numbing.”

In principle, alerts are a very good idea. If someone’s tired or distracted, an alert could save someone from, say, ordering a very dangerous drug combination. But people only have so much room in their brains to handle alerts. If the people designing the software don’t take this into account, constant reminders could actually increase errors.

Organizations Aren’t Calculators

Why doesn’t the market take care of this? Healthcare IT vendors who do a better job of adapting to users’ real needs should beat the ones that don’t. In the real world this isn’t happening. Why? Organizations aren’t calculators — or at least not simple ones. Continue reading →

Assumption: Organizations Aren't Calculators

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Most economists start from the same assumption about organizations that they make about people: they are rational and make well-informed, calculated decisions based on their self-interest.

You might ask, did these economists ever have a real job? If so, were they taking Acid or Ecstasy most of the time? How did they get the idea that what was going on was even remotely rational?

Now many economists will freely admit that sometimes organizations make decisions that aren’t entirely rational. But over time the competitive pressures of the market will smooth out the effect of these irrational blips — the more rational companies will outcompete the less rational ones. So, it’s safe for your model to assume that organizations act like calculators.

If only it were true. Sometimes in the world of IT, where I work, it feels like life inside corporations is a reality show called Survival of the Least Stupid. Sure, if a company keeps making crazy decisions it can wipe them out (or, in the case of GM, get them bailed out by the Feds). But for any decent sized company, there’s plenty of give to recover from astonishingly irrational decisions.

Also, managers in organizations make a lot of their decisions based on what their peers in their industry are doing. If all your competitors are making the same mistakes, you can do some pretty stupid stuff and still compete quite nicely.

It’s also not uncommon for organizations to be extremely rational and efficient in one part of the business while throwing their brains out the window in another. I once worked as a contractor for a company that calculated to the penny how much money they could squeeze out of their janitors while on the IT side listened attentively to their inner child, who was screaming, “I want that shiny new red bike NOW!!!!”

Even when organizations have made rational decisions, implementing those decisions can be really hard. Organizations are their own mini ecosystems, with different units having different types of resources that shape their behavior in different ways, making them more or less resistant to certain changes.

Then there’s backbiting, turf wars, and all the other festivities known as office politics that can easily kill a rational decision before it ever leaves the crib.

Sometimes even knowing whether our rational decision has been implemented can be challenging. Take what the HBO series The Wire called “juking the stats.” From police precints to schools, The Wire showed how decent people were forced to distort reality to get the optimistic statistics the Top Brass demanded.

The difficulty of actually implementing rational decisions once they’re made is why we have the industry known as Organizational Development. It’s devoted to churning out scads of books, seminars, and consultants that try to explain how to go about changing your organization — or, to put it another way, getting your organization to act the way economists say organizations act.

Pretending that organizations or people are calculators doesn’t make sense. If we start from assumptions that are based in the real world, I think we’re going to end up with a much more useful model of economy.

Next up: a concrete example.