Re:Balance -- Jim Peterson

Review -- Book of the Year: Daniel Kahneman, "Thinking, Fast and Slow"

One of my students in Risk Management at the University of Chicago beat me to a reading of Daniel Kahneman’s recently-released “Thinking, Fast and Slow” (Farrar, Straus and Giroux, 2011, 418 pp.). 

A young man of few words but crystalline insights, he brought to class this terse review of Kahneman’s reprise of four decades of ground-breaking research into the flaws and fallacies embedded in judgments and choice-making:

“Too long” – he was typically pithy. “But brilliant.”

Right, on both counts. Start with the second: 

Modern English literature would have been impossible without the works of Shakespeare, if few others. The same, going back to the 1970’s: Kahneman and his late collaborator, Amos Tversky, opened whole new fields of inquiry and perception into human behavior.

Thanks to their pioneering work, we have the means to be both entertained and informed by the lessons in “Moneyball” (both the movie and Michael Lewis’s book), such as the stubborn clinging to soon-to-obsolesce folk verities by the talent scouts gathered in Billy Beane’s baseball clubhouse in Oakland.

And we can appreciate being rightly agog at the singular slogan of the credit crisis, the feckless pronouncement of Citigroup’s Chuck Prince in the summer of 2007, that “as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”   

More broadly, Kahneman and Tversky gave us the means to identify – and desirably to comprehend, although that is subject to much doubting skepticism – whole categories of sub-optimal decision-making. Consider such influences as:

• Herd behavior – and the entire population of mutual fund advisors, unable to distinguish the dubious quantity of talent in their performance from the simple effects of random luck.

• The compulsion to construct compelling if entirely unreliable stories based on tiny bodies of data – and the daily flood of the commentators’ vacuous “explanations” for insignificant price moves in the securities markets. 

• The whole industry of prediction models that are blind to their in-built exposures to rare but catastrophically destructive events – thinking, with sorrow and anger, of the graveyard population of financial structures, from Bear Stearns and Lehman Brothers to the Icelandic banks and the Irish real estate market, right on down to the “repo-to-disaster” at MF Global.

As for my student’s first words – Kahneman’s editor falls into the genre’s too-familiar pattern of over-stuffing between the covers. To be sure, the book is worth its price for its two appendices alone – Kahneman and Tversky’s landmark papers on the irresistible reliance on heuristics and biases, and the assessments of risk appetite and aversion in decision-making under conditions of uncertainty.

But it fails to distill and sharpen, for just one example, the unappreciated significance of regression to the mean in cases where hindsight attribution of causation is a cause of systemically erroneous decision analysis. 

That’s by way of quibble, for Kahneman has brought about a worthwhile trade-off: in exchange for any loss of readers deterred by an over-weight hundred pages, he has gained the achievement of a career-spanning reference work, to become dog-eared on the desks of those of us who will hope in small ways to pass his genius on to the next generation of the students of risk.  

  

This will be by way of valedictory to a difficult and challenging year -- to wish all readers a healthy and peaceful 2012 – even if the new year bids fair to be no less volatile and unpredictable than the old.

January marks this blog’s fourth birthday – celebrated in anticipation that inevitable new eruptions of corporate malfeasance, the capacities of regulators for continued mischief-making, and their continuing and frustratingly ineffective inter-actions with issuers and auditors, will all continue to provide material worth addressing. 

   

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Book Review: Tony Judt Has a Few Last Words

Ill Fares the Land, by Tony Judt, Penguin Press, 237 pages

“Ill fares the land, to hastening ills a prey,

Where wealth accumulates, and men decay."

-- Oliver Goldsmith, The Deserted Village, 1770

Although I had devoured Tony Judt’s sweeping prize-winner, “Postwar: A History of Europe Since 1945” (2006), I had missed the April release of “Ill Fares the Land,” for which I am obliged to a regular reader.

If there is reason to celebrate Judt’s ability to bring forth his extended essay under the terrible burden of his terminal battle with ALS – and there is – it is no less lamentable that his premature death in August removed him as promoter and advocate on its behalf.

Even if some months late to the task, I am impelled by the strong suspicion, much as I would love otherwise, that this space shares few enough readers with Judt’s regular platform, “The New York Review of Books.” 

Judt paints with eloquence the debased world of “conspicuous consumption of redundant consumer goods” – enabled by the retreat from the postwar achievements of interventionist governments in areas of security, prosperity and social services. Instead are the unprecedented wealth disparities of the last thirty years, especially in the United States and the United Kingdom but throughout advanced economies globally, with all the attendant costs and consequences falling disproportionately on the increasingly disadvantaged: social alienation and depression, failed education and mental and physical dysfunction.

Judt points to the confusion sown by self-interest pursued and based only on maximized individual economic advantage, with “minimal reference to extraneous criteria such as altruism, self-denial, taste, cultural habit or collective purpose” – even while the advocates of unregulated free markets drove into the abyss of the credit crisis of the last three years under the “false precision” that because “they didn’t know everything, as a result it turns out that they didn’t really know anything.” 

As Judt sees it, the reduction in trust and cooperation on which the social cohesion of the modern state critically depends, has given way to policies driven by fear, selfishness and bigotry – manifest in communities segregated and gated-off both physically and culturally. The ominously frightening consequence, when government cannot function on trust, is that it will move to do so by intrusion and repression, and ultimately by violence.

In the way of polemicists since Jeremiah, Judt in his outcry for a new form of social discourse does stop short – or so it could be charged, by those for whom words of inspiration only come alive in action. For his rhetoric flags, both on the particulars of a process for a new form of engagement across the spectrum of political principles, and even more on the blueprint by which the headline topics of a just and caring society might be realized.

Which takes nothing away. Voices on Judt’s behalf need to be raised, post mortem. His legacy is one of those small works that emerges from time to time, well ahead of the readiness of even sympathetic audiences to grasp its ultimate impact.

To punch its weight, however, would not have meant stints on the Oprah show or Comedy Central. Even writing for an American audience, Judt has a style, exemplified by his use of both diacritical marks in the word “dèbâcle,” that must have prepared him for an underwhelming reception in the popular audiences.

Which is fine. “Ill Fares the Land” was never destined for wide readership. The population of conservatives genuinely qualified and inspired to engage a substantive conversation with its content could probably convene in a closet; other pretenders on the Right would fall among Judt’s targets as having prospered personally – he would say, selfishly – from the subsidies and support of the active operations of government through the course of “the American century.”

Meanwhile, know-nothings at both ends of the political spectrum will not appreciate a work demanding more cerebral engagement than Fox or MSNBC, nor will they stick with the task of reading to chapter two without their lips getting tired.

For myself, I happily leave to the professional ideologues the debates over the relative analytic purity of Judt’s vision for a renascent substantive form of civic engagement.

Here’s the thought: take an evening off from the cacophony of the electronic media, and invest the time and mental effort to wrestle with these messages. When a sufficiently receptive audience has done that, the process will be well begun of extending the foundations for a sustainably re-envisioned global society of both compassion and decency.

 

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Book Review: Satchel Paige - Baseball's Philosopher on the Business of Life

Satchel: The Life and Times of An American Legend, by Larry Tye, Random House, 298 pages

“Don’t look back. Something might be gaining on you.”
    -- Leroy “Satchel” Paige

I lost a dear colleague -- eleven years ago and much too soon – who, in addition to his friendship, ranked with the finest business advisors I’ve known.

He operated brilliantly at the complex intersection of law, finance and business – with a unique skill in bridging their conflicting vocabularies and cultures. In large part it was his ear and instinct for the perfect quote, citation or maxim.

His invocations, to relax a tense conference room or break an impasse in negotiations, drew on sources that were inexhaustible and encyclopedic:

• The movies: “We don’t need no stinkin’ badges” and “We’ve been on double secret probation, whatever that is” and “It’s not personal, Sonny; it’s just business.”
• The military: “Victory has a thousand fathers; defeat is an orphan” and “Once more into the breach, dear friends” and “It’s good to kill the occasional admiral, pour encourager les autres.”  
• And American novels: “Never cop another man’s plea” and, especially, “There was only one catch, and that was Catch-22.”

He was really at his best with the wisdom of sports – Red Smith and Casey Stengel, and Yoga Berra’s incomparable advice, “When you come to a fork in the road, take it.”

So he’d have devoured with delight Larry Tye’s new book, which takes to a new level the basic, long-familiar tale of one of the game’s premier figures and doubtless one of its most quotable – Paige becoming widely known as a late-arriving darling of the national media, when at the venerable age of 42 he was finally able to pitch in the newly-integrated Major leagues.

It’s the strength of Tye’s examination to expose the dark poignancy behind the entertaining laugh lines. On Paige’s extraordinary control – “throw strikes – home plate don’t move” – the back story of his accuracy with a baseball lies in the poverty of his childhood in Mobile, Alabama, where his rock-throwing skill was both his defense against gangs of hostile white boys and the weapon to fell pheasants and squirrels for the family dinner table.

As for the famous “I ain’t never had a job – I just always played baseball”: The combined physical, financial and emotional pressures of barnstorming what Tye calls “hungryball,” around the rickety Negro leagues of depression-era America, would have drained Paige of any romance or sentimentality, long before his free-spending habits forced him to keep hustling -- well beyond the sell-by dates of either his talent or his dignity.

Paige’s saga is essential to the complex story of the integration of American professional sports – both the hesitating steps that belatedly opened the doors for Jackie Robinson, Paige’s much younger and perhaps less-deserving teammate on the Kansas City Monarchs, and the immediate shift of talent and fans that doomed the Negro leagues and their separate, unequal but influential place in black American culture.

Concentrating on Paige’s own perspective, author Tye tells an outsized character’s story, freely and refreshingly drawing on the vocabulary of the times – both the hyper-ventilated synonymy of the baseball press and the crude and racist language of a rigidly segregated society.

In so doing, he illuminates the evolutionary steps towards baseball’s integration – from Paige’s play in lily-white Bismarck, North Dakota, to the high level of competition between white and black teams in the California winter league.

And eventually, the national-level proof that integrated crowds would pay to see integrated baseball, under the entrepreneurship of the Iowa-bred and racially insensitive Clevelander Bob Feller, who faced off with Paige on a 1946 barnstorming tour, the year before Robinson moved up to the Dodgers.

All were part of the social fabric about to be so dramatically re-tailored by the court decisions, civil rights actions and legislative programs of the two decades to follow.

Living both as hard and as well as conditions would allow, Paige himself fulfilled the axioms of his philosophy only enough to sustain both his remarkably durable physical abilities and his celebrity.

This summary alone would underpin his approach to a lifetime of multi-layered competition -- and is freely adaptable to the management of a personal career, a team of employees or an entire company:

“Work like you don’t need the money."
“Love like you’ve never been hurt."
“Dance like nobody’s watching.”

To readers in the business book industry: While Tye takes note of the broad press attention Paige eventually achieved, late in his playing days, there is an untapped market for a little volume on management leadership, compiling the lessons of the hundred best quotations out of my late friend’s commonplace book.

On which subject, all readers are invited to send personal favorites from their own experiences.  

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Business Strategy for the New Year -- A Non-Review of Pierre Bayard

How to Talk About Books You Haven’t Read, by Pierre Bayard, translated from the French, “Comment Parler des Livres Que l’on n’a pas Lu?,” by Jeffrey Mehlman, Bloomsbury, 185 pages

It being the time of year for suggestions and resolutions, this bit of strategy is from the syllabus for my January class of MBA students, by way of a jewel of an essay from French literature professor Pierre Bayard.

Early in my prior life writing for the Paris-based newspaper, I adopted a personal principle – that I would not review a book I was not prepared to recommend.

I had been sharply negative about a book that fell well below my perhaps too-generous expectations. To fend off the author’s immediate and self-righteous unhappiness – directed loudly to both my editor and to me – outweighed the satisfaction of warning potential readers away from an unworthy piece of work.

But that is not the reason why these comments should not be seen as a “review.” Rather, the suggestion that you need not read this book – indeed, ought not – is driven by the exposition of M. Bayard himself. 

Which is that, in a literate society, we are all obliged – academics and critics perhaps more than others – to speak knowledgeably about books we have not read. The context may be as intimate and embarrassing as a chance encounter with the author, or as professionally risky and demanding as a themed symposium. Involved in any case are high degrees of anxiety and the likelihood of career-threatening exposure and humiliation.

Drawing upon sources from Montaigne, Proust and Oscar Wilde, to Bill Murray’s character in the movie “Ground Hog Day,” Bayard proceeds – with his glib Gallic tongue lodged firmly in his cheek – to deconstruct the very concept of “reading”: an activity seen to embrace no more than a glance at a title and table of contents, skimming, sampling pages at random, absorption of commentary, and familiarity with the author’s other works as well as those of others in the genre.

Conversely, to allay the concerns of the insecure and the indolent, Bayard extends the ambiguous concept of “non-reading” not only to books both unknown and deliberately ignored, but those once read but long ago forgotten.

Once established that to “read” is to know a book by any of the identified means, and not necessarily by turning the pages, Bayard provides a structure and gives permission to hold forth on a book not ever actually held in hand – using techniques such as talking only about the author, discoursing on the subject in general, avoiding or changing the topic, or speaking instead of entirely other works. 

So here is the pedagogic follow-up: just as Bayard clarifies that the choice to read a book necessarily implies a choice not to read an infinity of others, so too the limits of time and energy put constraints on the ability to absorb business advice and guidance – there’s just too much out there. 

Academic theory is here supported by the empirical observation of workplace rules of thumb: 20% of customers generate 80% of profits; one-quarter of employees cause three-fourths of the human resource problems, etc.

From which emerges this guidance for priority setting: spend time where the pay-off lies, and stop sweating the small stuff.

And from that comes specific implementation: Most books of strategy, advice and social theorizing consist of a succinct hypothesis, an explanatory outline of modest length, and the blown-out and over-long expansion to book length that seeks to justify a price of $29.95. But since their real value – if any -- lies in the preface and the first chapter, the available wisdom can be extracted while standing in the bookshop aisle or resting in its café, whence the book can be re-shelved with a savings of both time and purchase price.

It would violate my reviewer’s principles to give here my choice of recent books that deserve this treatment – although in response to readers’ queries I will be happy to do so privately. But as a hint, I would point to anything in the Business section written by a retired CEO or with a single word for a title.

Bayard himself would not only endorse the suggestion that readership of his book is expandable to include all those who never crack its covers. He would also credit my confession to launching these observations although I had left the last fifty pages of his book untouched.

This will thank you for your interest and comments during a difficult and challenging year. I wish to all a safe and joyous holiday season, and a peaceful and healthy New Year.