Stevens in Chicago; effective organizations

Brett Stevens gave great opening speech (reference New York Times, HT Luis Garicano) at the University of Chicago. One part stood out to me and deserves a comment. Bret starts with the problem of groupthink:

Why didn’t anyone at Facebook—sorry, Meta—stop Mark Zuckerberg from going all-in on Metaverse, arguably the worst business idea since New Coke? Why were economists and Federal Reserve Governors so confident that interest rates could stay at the bottom for years without a serious risk of inflation? Why did the CIA think that the Afghan government could resist the Taliban for months, while the Ukrainian government would surrender to the Russian army in a few days? Why did so few people on Wall Street bet against the housing market in 2007? Why were so many officials and highly trained analysts so adamant that Saddam Hussein had weapons of mass destruction? Why were so many people convinced that overpopulation would lead to catastrophic food shortages and that the only reasonable answers would be a one-child policy and forced sterilization?

Oh, and why did so many major pollsters fail to predict Donald Trump’s victory in 2016?

Noticeable institutional failures are a matter of our age. We could add the SBV regulatory fiasco, the financial regulatory failure of 2007, the CDC FDA and multiple governments under Covid, and more. Systemic incompetence includes not only disasters, but continuing wounds from the Jones Act to California’s billions wasted on apparently inefficient spending by the homeless.

The list is a bit unfair, of course. Choice Bias: These are big failures, but large organizations sometimes achieve some success. There is an iPhone for every Metaverse, which I thought was a dumb idea at the time. And it’s always easy to see the idiocy in hindsight, but much harder in real time. Decreasing our economic growth and spending trillions to reduce carbon emissions 20 years from now will be seen as either a far-sighted, far-sighted move that saved civilization, or a grand collective delusion. What he? Who is the naked emperor, and who is the little girl on the sidelines of the parade? Remember also that gadflies are usually wrong.

But my question is: how to structure large organizations to avoid such catastrophic mistakes? As an economist, and also a macroeconomist, I know little about this.


… Why is it that when you have a lot of smart people in the same room, their collective intelligence tends to go down instead of up? Why do they always seem to press the button to turn off their critical faculties when faced with sentences that an old colleague of mine liked to say must disappear in the presence of thought?

It is not obvious that people’s critical faculties are weakened, but their incentives to talk about them are weakened.

First, the problem is not that people are not smart. This is what they fear.

It takes courage to yell “stop” when everyone says “come on” or “go” when everyone says “stop” and courage is not part of the regular college curriculum. In my generation, the hardest thing to say no to was those who had professional power over us. In your generation, I think, these are people who belong to your ideological tribe. Whatever it is, how many of us, to be honest with ourselves, actually have that kind of courage?

Secondly, there is the problem of rationalization – smart people convince themselves and others of some really stupid things.

Robert McNamara, one of the first “child prodigies” and arguably one of the most prominent figures in American public life of the 20th century, was one of the fathers of the Vietnam War when he was at the Pentagon and the Third World debt crisis when he worked at the Pentagon. he was at the World Bank. Somehow he always managed to convince the other smart people in the room that he was right. Can you spot the fundamental flaw of an idea when the arguments for it sound so compelling?

Or he persuaded them to silence their doubts and move on.

Thirdly, the psychological aspect.

Some people are avid seekers of truth. They are almost innately willing to risk rejection, ostracism, and even hatred in order to be right. But most people just want to belong, and the most important elements of belonging are consent and submission. … the usual emotional companion to intellectual independence is not pride or self-confidence. It is loneliness and sometimes paralyzing self-doubt.

That’s insightful, but it doesn’t get us to the question that’s on my mind: Why do some institutions seem more prone to groupthink disasters than others? Bret’s latest insight boils down to this:

Here is the fourth factor, perhaps the most decisive. This is culture. Does the culture of the society or institution encourage us to stand out or conform; speak or bury our doubts? Does it serve as a guide to groupthink or an obstacle to it?

I just mentioned that we all like to think of ourselves as independent thinkers, even if relatively few of us actually are. There is an institutional consequence. Nearly every non-religious American institution claims to encourage open debate and—it’s a terrible cliché—thinking “outside the box.” Apple’s famous “Think Different” slogan was one of the most successful ad campaigns of my life…

But in my experience, very few institutions really welcome this, at least when it puts them under any sort of pressure or criticism, let alone loss of social capital or potential income…

But that doesn’t always have to be the case. In fact, institutions can practice what they preach. They can proclaim principles, set the tone, declare norms and expectations, and then live up to their principles through regular practice. They can explain to every new class of students or new employees that they defend independent thinking and freedom of expression in both word and deed. They can prove they won’t give in to mob outrage and other forms of public pressure, either by canceling speaker invitations or by never inviting controversial speakers at all.

There is a way to do this. This is called leadership. You have a great example right on this stage in John Boyer. And you have a historical example of this in Bob Zimmer. I want to say a few words about him.

That’s all Bret said, just in time for the graduation speech in Chicago. So, we have one answer to my question: in the culture of some institutions, frank comments from the emperor are welcome, and in most they are not. Leaders can set cultures.

I think it’s just scratching the surface. The culture of free speech in college is nowhere near as important as the government’s decision to go to war or any of Bret’s examples. Ultimately, institutions must have mechanisms in place for decision-making, rallying and implementation. Whether you’re going to go to war or not, you have to make a decision, not argue about it forever. If you have ever been involved in a group decision, you know that there are gadflies who raise stupid questions over and over again, and if you have too many discussions, you will never get anywhere. I think the institutions in today’s government are in CYA mode for good political reasons. The Fed has a culture of groupthink, not because it wants to, but because, in today’s Washington, acknowledging mistakes would lead to a completely inefficient institution becoming the target of constant attack. Again, the gadflies are mostly wrong too!

I think there are additional institutional structures that could help make the right decisions. Official devil’s advocate for important decisions, and making sure it doesn’t lead to a career dead end is one useful concept I’ve heard of. But the broader question of what it is remains one that I would like to know more about.